Incident: Jinshan Office released its 2024 quarterly report. In 2024 Q1, the company achieved operating income of 1,225 million yuan, +16.54% year on year; realized net profit of 367 million yuan, +37.31% year on year.

The increase in net profit exceeded expectations, and the sales expense ratio decreased by 6.11 pct year over year. 2024Q1, the company achieved remarkable results in cost control. The sales expense ratio, management expense ratio, and R&D expense ratio were 17.62% (year-on-year -6.11pct), 9.22% (year-on-year -0.72pct), and 33.03% (y-0.75pct), respectively, and the company's net interest rate reached 29.82% (+4.57pct year-on-year).

The year-on-year growth rate of institutional licensing revenue recovered, and the dual subscription business grew steadily. By business, 2024Q1 achieved revenue of 7.34 (+24.80%), 2.42 (+13.57%), 1.94 (+6.31%), and 55 million yuan (-18.44%) of domestic institutional subscription services, domestic institutional subscription and service business, and international and other businesses, respectively. The shutdown of third-party commercial advertising business led to a year-on-year increase in revenue from authorized domestic institutions, while revenue from overseas and other businesses declined year-on-year. As of March 31, 2024, the number of monthly active devices for the company's main products was 602 million (+2.21% year over year). Among them, the PC version of WPS Office had 270 million monthly active devices (+7.14%); the mobile version had 329 million monthly active devices (-1.50% year over year).

The enterprise version of WPS AI was released, and I am optimistic that the big model will be commercialized on the B-side. On April 9, 2024, the company released the WPS AI Enterprise Edition, which consists of AI Hub (smart dock), AI Docs (intelligent document library), and Copilot Pro (enterprise smart assistant), and has deep cooperation with leading domestic big model companies, including MiniMax, Smart Spectrum, Shang Tang, Wenxin Yimen, Tongyi Big Model, etc. We believe that B-side customers are more willing to pay and have more clear needs, and are optimistic about the monetization of WPS AI applications on the B-side.

Investment advice: We expect the company's 24-26 revenue to be $55.18, 72.38, and 9.662 billion yuan, respectively, and net profit to mother of 16.26, 21.32, and 2,861 billion yuan respectively. We are optimistic about the prospects for “AI+ office” and the commercialization of the company's WPS AI, and maintain the “buy” rating.

Risk warning: Downstream demand falls short of expectations, R&D progress falls short of expectations, the company's business development falls short of expectations, and market competition increases risks.