Key points of investment:
The company issued a foreign investment announcement: The company plans to use 90.24 million yuan to acquire about 38.3% of Foxin Kunpeng's shares. After the transaction is completed, the company will hold about 73.2% of Foxin Kunpeng's shares, obtain control and include them in the consolidated statement.
The acquisition is expected to provide an opportunity for the company to open up the domestic market. Foxin Kunpeng's main business is OFD office suites, which are mainly aimed at customers in the domestic Xinchuang market. After the acquisition is completed, the company is expected to use Foxin Kunpeng to quickly open up the Xinchuang OFD market, further develop the PDF+OFD layout of the document layout, and increase the company's domestic share. In addition, it is also possible to share customer channels with Foxin Kunpeng by opening up a terminal portal to achieve collaboration between the market and customer resources. According to the company's financial report, the domestic business accounted for only 8.9% of the revenue in the first three quarters of 2023. We believe that the company will increase its layout of the domestic credit innovation market and actively connect with various major domestic models. It is expected that in the future, it will use rich intelligent document services to achieve faster growth and increase the share of domestic business.
Focusing on subscription share and ARR, they both recorded high growth in 2023, and performed well in 23Q4. According to the company's performance report, it is expected to achieve ARR 249 million yuan (+80% YoY) in 2023, accounting for about 35% of annual subscription revenue (+14pct year over year).
On a quarterly basis, 23Q1-Q4's ARR growth rate in a single quarter was 2200/2600/2700/36 million yuan, respectively, which accelerated significantly; in 23Q4, the share of subscriptions reached about 40% in a single quarter, proving that the subscription transformation is progressing smoothly.
It is expected that 2024 will have all the elements of subscription volume, accounting for more than half. In terms of products, the company completed the packaging and upgrade of the core product line PDFEditor, released a new product line with three-terminal integration and cloud service functions such as electronic signatures and AI assistants to promote cloud transformation; in terms of sales, it is currently strengthening the conversion of permanently authorized customers to convert subscriptions to procurement, maintenance, and upgrade services. We expect the company will account for more than half of its subscriptions in 2024.
To consolidate the power of AI documents, overseas PDF editors have fully integrated AIGC. In April 2023, PDF Editor Cloud, the company's overseas cloud product, took the lead in integrating AIGC; in May, a new product line was released and the price increase was achieved; after the major version upgrade in September, the company's overseas PDF editor fully integrated AIGC, which can achieve document summarization, content rewriting, real-time interaction, and will continue to iterate more AIGC functions. The company has gradually implemented AIGC in the office scene, enhanced user stickiness, and successfully established an AI document brand image, which will also help develop new customers.
Investment analysis opinion: According to the performance report, we adjusted the net profit forecast value for 2023 to -099 million yuan (the original forecast value was -107 million yuan) and maintain the 24-25 net profit forecast of -0.55+0.38 billion yuan. In the period of accelerated subscription transformation, the company's apparent revenue is easily greatly affected by the subscription model's revenue instalment recognition and the fact that subscription pricing is lower than that of a perpetual license. It is recommended that more attention be paid to core metrics such as subscription revenue share and ARR. As the subscription transformation is completed in the next two years and apparent revenue growth returns to normal, there is plenty of room for the net profit margin to rise. Maintain a “buy” rating.
Risk warning: Unprofitable in the short term; channel promotion falls short of expectations; changes in the overseas business environment; and the synergy effect after the acquisition of Foxin Kunpeng falls short of expectations.