3Q23 deducting non-net profit is basically in line with our expectations.
The company announced 3Q23 results: revenue of 2.47 billion yuan, down 3.71% from the same period last year; net profit of 214 million yuan, down 7.25% from the same period last year, lower than we expected (250 million yuan); deducting non-net profit of 191 million yuan, an increase of 19% over the same period last year, basically in line with our previous expectations (200 million yuan).
Trend of development
The weak revenue performance in the third quarter may be affected by the recovery of overall demand in the industry and the rhythm of quarterly revenue recognition.
The company's 3Q23 revenue fell 3.7%, including 1.4% from the publishing business and 2.6% from the distribution business. At the foreign level, the 3Q23 of the publishing business increased by 2.7%, while the distribution business decreased by 7.9%. We believe that the company's teaching materials and auxiliary business is stable, but general books may be under pressure due to the slow recovery of overall demand in the industry; in addition, there is a slight difference between quarterly code changes and revenue changes. we believe that to a certain extent, it is related to the quarterly recognition rhythm of revenue, and partly affects the level of revenue in the current quarter.
The gross profit margin has increased, the expense rate fluctuates slightly, and the non-performance as a whole is in line with expectations. Gross profit margin 3Q23 also increased by 1ppt to 35.3%, of which the publishing business / distribution business respectively increased 0.4ppt/3.4ppt. We believe that, on the one hand, the company continues to improve the proportion of self-compiled teaching materials in the publishing section, and continues to magnify the scale effect in the distribution section; on the other hand, it is slightly related to the fluctuation of paper price. In terms of the period expense rate, the sales / management / R & D rate 3Q23 slightly increased 1.0ppt/0.8ppt/0.2ppt compared with the same period last year, which we believe may be due to marketing expenses in some businesses in the third quarter, as well as slight effects such as Culture Plaza depreciation and operating expenses, but remained stable as a whole. In terms of non-recurrent items, the company's Q3 had the impact of investment income and other income last year, resulting in non-recurrent income of 70.78 million yuan, while non-recurrent income was only 23.02 million yuan in the same period this year, so the return to the mother level decreased compared with the same period last year, but deducting the non-level 3Q23 still maintained a high growth rate of 19% compared with the same period last year. We think it also reflects the company's ability to control costs and expenses.
Promote the layout of educational informatization in the future and pay attention to the high dividend value. During the quarter, the company's "Phoenix Vocational Education knowledge Service platform", "Phoenix Yi Learning after-class Service platform", "discipline Network", "Phoenix Book Garden", "Phoenix Intelligent proofreading system" and other products were unveiled at the 13th China Digital Publishing Expo. In terms of cash flow, as of the end of 3Q23, the company's monetary funds and transactional financial assets have reached 3.418 billion yuan. We believe that the overall cash flow is abundant and is expected to support the company's steady dividend level in the future. According to our estimates, the current dividend yield is 5.2% (at the closing price on 2023-10-27, corresponding to 2023), it is recommended to pay attention to its high dividend value.
Profit forecast and valuation
Taking into account the slow recovery of the book market, the 2023 Universe lowered its 2024 net profit forecast for homing by 4% to 220.5 billion yuan. The current share price corresponds to a price-to-earnings ratio of 12 times / 11 times 2023 / 2024. Maintain the outperform industry rating, due to earnings forecast adjustment, cut the target price 4.4% to 13.0 yuan, corresponding to 15 times 2023 price-to-earnings ratio, 23.5% upside compared to the current stock price.
Risk
Industry policy changes, the risk of rising paper prices, the impact of potential goodwill impairment, population growth slowed down.