In 3Q23, the company achieved revenue of 2,562 billion yuan (+8.95% year-on-year) and net profit of 178 million yuan (+226.57% year-on-year), and steady growth in performance. The large increase in net profit was mainly due to the low base caused by losses due to changes in fair value last year. The company's core distribution and publishing business is developing steadily, and the diversified expansion of channel platforms has contributed to growth. Innovative businesses such as education services and cultural digitization continue to advance, and shareholder returns have been continuously increased through dividends. We are optimistic about the leading edge of the company's regional leaders and maintain the “increase in holdings” rating.

The growth trend is good, cash reserves are sufficient, and dividends increase shareholder returns. In 3Q23, the company achieved revenue of 2,562 billion yuan (+8.95% year-on-year), mainly due to business growth in education services and general book publishing and distribution. Among them, the distribution/publishing business achieved revenue of 21.58/ 1,289 billion yuan respectively (+5.47%/8.87% year-on-year). In 3Q23, the company achieved a gross profit ratio of 29.91% (y-o-y +2.39pcts); sales/management/R&D expenses ratio of 9.72%/12.97%/0.17% (year-on-year +1.22/- 0.24/-0.02pct). In 3Q23, the company achieved net profit of 178 million yuan (+226.57% year-on-year), mainly due to the company's promotion of coordinated development of capital management and industrial operations to increase investment income; non-net profit was reduced by 180 million yuan (+68.15% year-on-year). As of the end of the third quarter of 2023, the company had a monetary capital of 8.22 billion yuan, sufficient cash reserves, and a good asset structure. In addition, the company announced the proposed profit distribution plan for the third quarter of 2023. Each share will distribute a cash dividend of RMB 0.18 (tax included), and a total cash dividend of RMB 220 million (including tax) will be distributed to increase shareholder returns through dividends.

The distribution of textbooks and teaching aids has maintained a good growth trend, and channel collaboration and resource integration have improved results. In the first three quarters of 2023, the company's issuance revenue was 6.981 billion yuan (+8.38% year-on-year), achieving a gross profit margin of 29.4%. Among them, textbooks and teaching aids achieved sales volume of 3.306 billion yuan, revenue of 3.05 billion yuan, and gross margin of 35.96%; general book sales reached 5.916 billion yuan, revenue of 3,559 billion yuan, and gross margin of 23.88%. The company's textbook distribution and sales network has a stable advantage, boosting the education service business, and is leaning towards the high school and vocational education markets under the “double reduction” policy. The company focuses on the integrated development of online and offline, and distribution capacity continues to increase. According to the company's semi-annual report, online/offline revenue for the first half of this year was 24.81/2,882 billion yuan (+9.72%/+8.69% year-on-year), all of which achieved growth.

The publishing business is developing steadily, focusing on theme publishing and key publishing projects. In the first three quarters of 2023, the company's publishing revenue was 2,527 billion yuan (+10.64% year-on-year), achieving a gross profit margin of 33.67%. Among them, textbooks and teaching aids achieved sales volume of 2,475 billion yuan, revenue of 1,430 billion yuan, and gross margin of 41.79%; general book sales reached 3.192 billion yuan, revenue of 786 million yuan, and gross margin of 26.39%. In terms of textbooks and teaching aids, in the first half of the year, the company revised, adjusted, and optimized products for new curriculum plans, textbooks, and college entrance examination models. The quality of the content and sales volume of the new edition of the book improved markedly. In terms of general books, the company focuses on the development of high-quality publishing, and has launched more than 400 volumes of books of 19 types, such as “The Story of My Family's “Human World”, etc., and “Ye Jiaying on Su Shi's Poems” related to the culture of the Three Su Su. In terms of digital culture, according to the company's semi-annual report, in the first half of this year, the company launched 730 integrated publications, generating 5 million yuan in revenue from the new business format; the “Blockchain Publishing and Distribution Innovation Project - Digital Book Collection” was selected into the Sichuan Cultural Industry Development Project Library.

Risk factors: changes in textbook publication and distribution policies; changes in tax policies and subsidy policies; rising prices of raw materials such as paper; the number of newborns and primary and secondary school students in Sichuan Province fell short of expectations; project investment progress fell short of expectations.

Investment suggestions: The company's core distribution and publishing business is developing steadily, the diversified expansion of channel platforms has contributed to growth, and the innovative business represented by education services and cultural digitization continues to advance. We maintain the company's 2023-2025 revenue forecast of 115.27/120.99/12.621 billion yuan, and maintain the company's 2023-2025 net profit forecast of 15.69/17.26/1,840 billion yuan; the current stock price corresponds to PE 10.2 /9.2/8.7 times that of 2023-2025.

Referring to the valuation levels of leading regional publishing companies such as Phoenix Media, Zhongnan Media, and Zhejiang Media (average of 14 times PE in 2023, Wind's unanimous expectations), we gave the company 14 times the PE in 2023, corresponding to the target price of 17 yuan, maintaining the “increase in holdings” rating.