Incident: The company disclosed its 2023 annual report on April 18, 2024. In 2023, the company achieved operating income of 11.244 billion yuan, a year-on-year decrease of 3.79%; net profit to mother of 936 million yuan, an increase of 32.21%; deducted non-net profit of 754 million yuan, an increase of 9.66%; total cash on hand at the end of the period was 10.677 billion yuan, an increase of 17% year on year; basic earnings per share were 0.47 yuan, up 30.56% year on year. The company's 2023 annual profit distribution plan proposes to distribute 3.05 yuan (tax included) for every 10 shares, with a total cash dividend of 597 million yuan (including repurchases of 645 million yuan), and a dividend rate of 3.75% (4.05% including repurchases) based on the closing price on the 17th.

The main business in charge continued to gain strength, revenue was rising steadily, and overall gross margin remained relatively stable. In 2023, the company's textbooks, general books and audio-visual products achieved revenue of 1,755/4.52 billion yuan, a year-on-year change of +2.43%/+6.57%, mainly due to the increase in the number of students and sales categories in 2023, and the increase in sales sales of the company's cultural and educational books and e-commerce platforms; gross margins were 25.24%/34.56%, respectively, with a year-on-year change of +3.27pct/ -0.61 pct. By the end of 2023, the company had 804 physical stores in Anhui, Jiangsu, Beijing, etc., forming a complete publication distribution service and education service system covering the whole of Anhui Province and surrounding areas. We believe that as the company continues to cultivate the market and increase its distribution capacity and market share of market-based teaching aids, the company's main business is expected to maintain its growth trend.

The education service industry chain has been extended and broadened, and the supply chain service system continues to strengthen. In 2023, the company continued to improve the rich educational publication product system to increase its share in the teaching aids market; at the same time, it promoted the research and education business, and achieved sales revenue of 37.63 million yuan within 2023, an increase of 607.33% over the previous year. We believe that the company will focus on new policy orientations and new user needs to promote overall quality education solutions including research and education, labor education practices, and delayed after-school services, which is expected to build an ecosystem of the company's education industry and achieve collaborative business development. In 2023, the company's supply chain and logistics service business achieved sales revenue of 3.8 billion yuan, a year-on-year decline of 3.54%, mainly due to a decrease in the company's revenue from some household appliance warehousing and logistics services.

The digital field of cultural services has been actively developed, and smart education content channels have both been upgraded. 1) Reading consumption: The company invigorated new media channels and launched customized products through short videos and big V delivery. The book e-commerce business achieved sales of 580 million yuan in 2023. 2) Games: The company launched a self-developed cube game app. The cube game platform has launched 444 game products, and the number of registered users has exceeded 2 million. 3) Smart education: The company combines AI technology research and development applications such as big models and digital people to build a reading evaluation system, and has developed a total of 659 digital content courses for the micro-class client. 4) Robots: Develop new Zhuzi educational robots in Anhui to improve integrated childcare solutions. We believe that as the company carries out a more professional and systematic investment layout and resource integration in the fields of culture, education and related technology, the new business is expected to contribute to increased performance while promoting the transformation and upgrading of the company's strategy.

Investment advice: The company's cornerstone business development is steady and progressive, while diversifying the digital fields of smart education, supply chain, and cultural services, and has now begun to bear fruit. We believe that the smart education business and game business can benefit from AIGC's development or enhance the company's profitability in the future. We expect the company's revenue for 2024-2026 to be 129.30/ 146.11/16.218 billion yuan respectively (the value before 24/25 was 157.93/18.478 billion yuan, respectively), with year-on-year growth rates of 15%/13%/11%, respectively, net profit to mother of 10.51/12.65/ 1,473 billion yuan, respectively, and 14/ 12/10 times PE for 24-26, maintaining a “buy” rating.

Risk warning: Overall demand in the teaching aids market has declined, the development of digital services and smart education businesses falls short of expectations, and subjective risk is measured