The Xinchuang sector has entered the 2.0 stage. Frequent policies superimposed on trillions of treasury bonds are expected to drive the Xinchuang sector marginally upward

On May 20, 2024, the second national test results “Safety and Reliability Assessment Results Notice (2024 No. 1)” was released, and the catalogue was expanded. On the financial side, the 2024 trillion treasury bond plan was released. According to the 2024 “Report on the Work of the Government”, 1 trillion ultra-long-term special treasury bonds will be issued. We believe this is expected to stimulate capital expenditure in the credit innovation sector. On September 18, 2024, the Fujian Provincial Development and Reform Commission issued a Feasibility Study Report and Preliminary Design for the Fujian Provincial Prison Administration's Xinchuang Renovation Project. The project includes upgrading 7536 terminals in the government extranet administration of justice administration area, and localizing 151 portable computers. The total investment estimate for the project is 42.2394 million yuan.

The Provincial Development and Reform Commission and the Provincial Department of Finance each bear 50% of the funding, and the Provincial Development and Reform Commission is partially funded by the Digital Fujian Special Fund.

Office software is an important part of Xinchuang. Looking back over the past 21 years, Xinchuang has driven the rapid development of the company's institutional business

Basic office software is the product with the widest range of applications in Xinchuang software. As an information-based management platform for government enterprises and institutions, localized office software carries sensitive information such as confidential documents, rules and regulations, and office data. Looking back at 2021, the company's domestic institutional licensing business increased by 107.10% compared to the same period in 2020. The Xinchuang industry has entered a period of strength. Under policy, the market space has expanded significantly. Demand from the company's government and enterprise users has increased markedly. The company's orders for streaming office software products have accelerated the penetration of the company's Xinchuang products, and driven the domestic institutional licensing business to continue to maintain explosive growth.

In the era of innovation, the company's institutional licensing business is expected to welcome rapid development again. According to CCID, the number of PCs owned in the party and government sector is close to 30 million. By the beginning of '23, only about 7 million PCs had been replaced in the past few years. Assuming that 3.6 million PCs were replaced in 23 years, leaving nearly 20 million PC replacement space, we estimate that 4/4.5/5 million units will be replaced every year for 24-26 years. The price assumes the unit price of Xinchuang Office At 500 yuan, Xinchuang Office has a revenue space of 2/2.25/2.5 billion in the past three years. We expect that with the further release of the Xinchuang policy and trillion-dollar treasury bond financial support, the institutional licensing business of the Jinshan Office is expected to resume high growth, driven by a round of credit innovation, and the overall revenue growth rate is expected to rise.

Investment advice: Considering the expected changes in Xinchuang policy and capital, we raised our profit forecast. Revenue was adjusted from 5.137/6.075/7.316 billion yuan in 24-26 to 5.22/6.475/8.095 billion yuan, revenue growth rate increased by 2 pct/6pct/5pct, and net profit to mother was adjusted from 1.552/1.954/2.405 billion yuan in 24-26 to 1.616/2.291/3.066 billion yuan. Considering changes in the Xinchuang industry, the company is a leading domestic office software company, and AI products are being rapidly iterated to maintain a “buy” rating.

Risk warning: the risk that domestic C-side demand falls short of expectations, B-side public cloud transformation falls short of expectations, the pace of commercialization of WPS AI products falls short of expectations, and the subjectivity of market space estimates