The results for the first quarter of 2024 were largely in line with our expectations
Jinshan Software announced its results for the first quarter of 2024: revenue increased 8% year over year to 2.14 billion yuan; operating profit increased 31% year over year to 602 million yuan, corresponding profit margin of 28%, all in line with our expectations. As of the end of the first quarter of 2024, the total amount of cash, cash equivalents and short-term investments on the Group's accounts was about 23 billion yuan; in the first quarter of 2024, the Group's operating cash flow had a net inflow of 329 million yuan.
Development trends
Game business: Two-dimensional games have performed well, and flagship IPs are ready to go. Game business revenue declined 1% year over year to 912 million yuan in the first quarter, mainly due to a natural decline in current game revenue, partially offset by the revenue contribution of “World of Sword Man: Origins” released in the second half of 2023. In terms of mobile games, the “Sword Net 3” documentary “Dragon Quest in the Sea of Fog” began public beta on April 25; according to the company's performance announcement, “Sword Net 3: Unbounded” is expected to be launched on all platforms in June this year. We expect that the launch of the multi-terminal interactive version will further increase the activity of existing players and promote the return of old players. In terms of mobile games, “Dusky White Forbidden Zone” performed well after the launch of the new version in April, and we expect that its outstanding performance in terms of daily active users and turnover will continue. According to management, gaming revenue is expected to grow 10% year over year in 2024.
Office business: The commercialization of WPS AI is progressing steadily. Office revenue increased 16.5% year-on-year to $1.23 billion in the first quarter, mainly due to steady growth in individual and institutional subscription business. On March 25, the company began C-side WPS AI grayscale testing. The management stated that the current user types, usage scenarios, user stickiness and activity are all in line with previous expectations; we expect that the user scale will be the primary goal of commercial operation of WPS AI C-side products in the short term, and the company will continue to invest in user experience optimization. In addition, the company released the WPS 365 new productivity platform on April 9. It plans to jointly explore the implementation of application scenarios through deep binding with existing customers. We anticipate that WPS AI's incremental revenue contributions will gradually be realized starting this year.
Profit forecasting and valuation
Considering that the game business performance exceeded expectations, the 24/25 revenue forecast was raised by 2%/3% to 99.2/11.70 billion yuan; in view of the increase in high-margin game revenue contribution, net profit to mother was raised 8%/10% to 10.1/1.37 billion yuan. Maintain the outperforming industry rating and target price of HK$30 (based on the 2024 SOTP valuation, corresponding 25 times the 2024 non-standard price-earnings ratio). The current stock price is trading 23 times the 2024 non-standard price-earnings ratio, corresponding to 17% upward space.
risks
The development of new business and games fell short of expectations; the pace of promotion of domestic substitution in the office business fell short of expectations.