Key points of investment:
The company disclosed its 2024 quarterly report: 24Q1 revenue of 1,225 million yuan, +16.5% year-on-year, net profit to mother of 367 million yuan, +37.3% year-on-year, after deducting non-net profit of 352 million yuan, +40.6% year-on-year. Benefiting from good control on the cost side, profit performance exceeded market expectations.
By sector, the subscription business is expected to accelerate:
1) Personal subscription revenue of 734 million yuan (YoY +24.8%). The company enhances user stickiness and payment conversion through rich membership benefits, and maintains steady growth. By the end of March, the number of monthly active devices for the company's main products was 602 million, up 2.21% year on year; of these, the PC version had 270 million monthly active devices, up 7.14% year on year. AI membership payments were gradually implemented in April, which is expected to drive C-side payment rates and ARPU values to rise quarterly.
2) Institutional subscription revenue of 242 million yuan (YoY +13.6%), and the growth rate has declined. The company is focusing on driving some users to switch from an annual site licensing model to a pure subscription model. The pace of confirmation may affect the apparent growth rate. Following the launch of the new WPS 365 office productivity platform in early April, the impact of AI and collaboration on B-side revenue is expected to be evident in subsequent quarters.
3) The agency authorized revenue of 194 million yuan (YoY +6.3%), which exceeded expectations. It mainly benefited from the promotion of new orders in the field of party, government, and credit innovation.
4) International and other business revenue of 55 million yuan (YoY -18.4%), of which overseas business grew healthily, but the shutdown of advertising business in 23Q4 had a temporary negative impact.
Fee control was better than expected, and contract liabilities showed positive subscription growth. 24Q1 sales/management/R&D expenses were -13.5%/+8.1%/+13.9%, respectively; the quarterly salary growth rate was about 9%, which continued to be significantly lower than the revenue side growth rate, driving the release of profits at an accelerated pace. 24Q1 contract liabilities plus other non-current liabilities were $2.46 billion, +22.2% year over year. The subscription business (especially long-term subscriptions) grew optimistically.
Actively integrating into mainstream leading models, it is expected that office software can be restructured. The company completed the construction of the WPS AI infrastructure platform, actively integrated into mainstream leading models, integrated it with WPS Office, Jinshan Documents, and WPS 365, and continued to improve functions such as user intent recognition, intelligent text layout, AI writing formulas, AI conditional formatting, and table copilot. It is expected that a breakthrough in the capabilities of the underlying big model will bring about qualitative changes in the capabilities of WPS AI. The company is expected to use the big model to restructure office software and expand the room for growth.
Maintain a “buy” rating. Maintain the 24-26 net profit forecast of 17.30/24.26/3.180 billion yuan, and the corresponding PE was 81/58/44 times, respectively. As a domestic digital office leader, the company also enjoys AIGC transformation dividends and maintains a buying rating.
Risk warning: AIGC product application results do not meet expectations; challenges from industry giants and new entrants; the pace of subsequent release of the Xinchuang business may fluctuate.