The Zhitong Finance App learned that Everbright Overseas released a research report saying that Jinshan Software (03888) achieved revenue of 2,137 billion yuan, up 8% year on year, down 7% month on month; 1Q24 achieved operating profit of 602 million yuan, up 31% year on year. Corresponding OP margin increased by 4.8 pcts to 28.2%, driving net profit to 85 million yuan, up 48% year on year. Looking forward to the future, the commercialization of WPS AI in the office business is expected to gradually advance, and “Sword Net 3” and “Dust White Zone” will drive the game business revenue sources to be more diversified; however, considering new game launches and AI R&D investment, the 2024-26 net profit forecast of 10.5/16.9/2.31 billion yuan will be maintained, and the “buy” rating will be maintained.

Everbright Overseas's main views are as follows:

The initial commercialization of WPS AI has begun, and the number of active devices per month for its main products has exceeded 600 million.

The 1Q24 office business achieved revenue of 1,225 million yuan, an increase of 17% year on year, of which: 1) C-side subscription revenue increased 25% year over year to 735 million yuan, mainly benefiting from the continuous enrichment of member benefits and increased user stickiness and payment conversion rates. As of 3M24, the number of monthly active devices for the main office products of 3M24 reached 602 million, an increase of 2.2% year on year. Among them, the number of monthly active devices for the WPS Office PC version reached 270 million, an increase of 7.1% year on year. 2) B-side subscription revenue increased 14% year over year to 242 million yuan, mainly due to WPS 365 as a new office productivity platform, continuously promoting the transformation of the B-side customer subscription model; 3) B-side authorized revenue ended 9 consecutive quarters of year-on-year decline and achieved a year-on-year increase of 6% to 194 million yuan, reflecting a recovery in purchase order demand in the party, government, and credit innovation sector. In terms of AI, 1) C-side: WPS AI has released product pricing on 3M24 (WPS AI membership pricing is 248 yuan/year, WPS conference member pricing is 348 yuan/year), and C-side AI commercialization is initially launched. It is expected that in the future, the company will continue to optimize the product's user experience, functional perfection, and optimal call of large models in different scenarios; 2) B-side: 4M24 launched upgraded WPS 365, covering upgraded WPS Office, WPS AI enterprise edition and WPS collaboration in the future. Co-create with B-side customers around segmented scenarios where large models are implemented.

The 1Q24 “Dust White Forbidden Zone” sales performance exceeded expectations. “Sword Net 3: Unbounded” will be launched in mid-June, and the annual game revenue is expected to increase 10% year over year.

1Q24 game business revenue was 912 million yuan, down 1% year on year; what is optimistic is: 1) The flagship mobile game “Sword Net 3” showed strong resilience and maintained steady development; in addition, the company expects the mobile “Sword Net 3 Unbounded” to be launched on 6M24, which will open up all platforms and enrich the player's gaming experience; 2) The 1Q24 two-dimensional shooter game “Dust White Forbidden Zone” has achieved significant growth in daily active users and sales since the official launch of the game 7M23. Continue to refine the graphics performance and gameplay, Currently, competitiveness is increasing on two-dimensional game tracks. 3) The sci-fi mecha game “Unlocked” received a version number on 3M24. Since it was first revealed, the game has remained in the top 100 of Steam's global wishlist. The bank believes that “Dust White” and “Three Unbounded Swords” will be the core of increasing game business turnover in the period following 2024, and are expected to drive a 10% year-on-year increase in game business revenue for the full year of 24.

Risk warning: WPS profits fall short of expectations; game launches fall short of expectations; competition in the cloud service market intensifies