Incident: 2024Q2 achieved revenue of 2.474 billion yuan, yoy +12.78%, qoq +15.77%, net profit to mother 0.393 billion yuan, yoy +587.84%, qoq +38.23%, and the performance exceeded our expectations.

Game business: “Dust White” and “Sword Net 3: Unbounded” performed well, once again raising annual revenue guidelines. 2024Q2's game business achieved revenue of 1.286 billion yuan, yoy +19.89%, qoq +41.09%. The year-on-year increase was mainly due to the increase in contributions from games such as “Dusky White Forbidden Zone”, which was partially offset by the natural decline in “Sword Net 3”; the sharp month-on-month increase was mainly due to the increase brought about by the launch of the “Sword Net 3: Unbounded” mobile app in June 2024. “Sword Net 3: Unbounded” shared data on all platforms with the company's flagship mobile game “Sword Net 3”. After launch, a large number of old players were successfully recalled, achieving a record high number of DAUs for all platforms of “Sword Net 3”. Looking ahead, based on the successful recall of old players on mobile, I am optimistic that “Sword Net 3” will continue to steadily contribute revenue. It has set the highest single-day all-platform revenue record since its launch on 2024 7-8, driving the annual game revenue guide to be revised to more than 20% from the previous 10% year-on-year increase. In terms of new games, the sci-fi mecha game “Unblock the Machine” completed its first domestic test in August 2024. Currently, the number of reservations on the official website has reached 0.947 million. We continue to monitor product progress. We are optimistic that the company's old games will steadily improve, and that new games will gradually be implemented, driving the growth of game business performance.

Office business: Personal office subscriptions continue to grow, and AI strategies are progressing steadily. 2024Q2's office business achieved revenue of 1.188 billion yuan, yoy +5.97%, qoq -3.07%. The company continued to optimize cloud services and AI functions, and the personal office subscription business continued to grow steadily. As of 2024Q2, the company had accumulated 38.15 million paying users, an increase of 15% year over year. The institutional licensing business was under pressure and the institutional subscription business declined month-on-month, leading to a month-on-month decline in office business revenue. On the AI side, Jinshan Office upgraded its AI strategy and released WPS AI 2.0 in July 2024. For individual users, four new AI office assistants for writing, reading, data and design have been launched. For enterprise customers, WPS AI Enterprise Edition was released, which integrates the three core modules of AI Hub (Smart Dock), AI Docs (Intelligent Document Library), and Copilot Pro (Enterprise Smart Assistant). For party and government customers, the Jinshan government office model was launched, and the WPS AI government version was released based on this. We are optimistic that the company's AI layout is progressing steadily, and that it will continue to be actively commercialized.

Fee control is good, and sales expenses fluctuate due to the launch of new games. 2024Q2 company's sales/management/R&D expenses were 0.379/0.155/0.741 billion yuan, yoy +26.03%/+1.29%/+11.36%, qoq +45.20%/-3.07%/3.99%, respectively, the cost rates of the three were 15.34%/6.28%/29.96%, yoy +1.61pct/-0.71pct/-0.38pct, qoq+3.11pct/-1.22pct/-3.39pct, of which The month-on-month fluctuation in sales expenses was mainly due to the increase in current promotion of new game launches.

Profit forecast and investment rating: The revenue recovery effect of the “Sword Net 3” platform exceeded our expectations, so we raised the 2024-2026 EPS to 0.99/1.13/1.40 yuan (previously 0.86/0.97/1.19 yuan), which corresponds to the current PE share price ratio of 19/16/13 times. I am optimistic about the steady growth of the company's game business, the continued advancement of the AI strategy for the office business, and the maintenance of a “buy” rating.

Risk warning: the risk of the old flow falling short of expectations, the risk of the new flow falling short of expectations, the risk of office business progress falling short of expectations, and the risk of industry regulation.