The WPS AI 2.0 function continues to expand, empowering the company's entire business line. AI strongly promotes user stickiness and payment conversion. At the “double subscription” level, the company's individual subscriptions are growing steadily, and the B-side is undergoing a deep transformation into SaaS subscription promotion, which will bring more continuous and predictable high-quality B-side revenue. Xinchuang's business increased in Q3. The introduction of a series of fiscal incremental policies will help boost government spending, or will support the growth of Xinchuang's business.

Incident: Jinshan Office released the 2024 three-quarter report. In the first three quarters of 2024, the company achieved revenue of 3.627 billion yuan, YoY +10.90%; realized net profit to mother of 1.04 billion yuan, YoY +16.41%; deducted non-net profit of 0.991 billion yuan, YoY +15.16%. Sales/ management/ R&D expenses were 0.687/0.314/1.262 billion yuan, YoY -3.79%/-7.57%/+17.26%, respectively. Achieved net operating cash flow of 1.079 billion yuan, YoY +14.92%. Among them, in the Q3 single quarter, the company achieved revenue of 1.214 billion yuan, YoY +10.53%; net profit to mother 0.318 billion yuan, YoY +8.33%; deducted non-net profit of 0.303 billion yuan, YoY +6.66%.

C-side subscriptions are growing steadily, and WPS AI 2.0 continues to be empowered. The company's domestic personal subscription revenue for the 24Q3 quarter was 0.762 billion yuan, YoY +17.24%, and the business growth rate was stable. The user base of WPS products was further expanded. By the end of Q3, the number of monthly active devices for the company's main products increased 4.92% year on year to 0.618 billion. Among them, the number of monthly active devices for PC increased 6.95% year on year, and the number of monthly active mobile devices increased 3.36% year on year.

WPS AI C-side applications continued to deepen. In the third quarter, the company's WPS AI 2.0 added AI writing assistant, AI reading assistant, AI data assistant, and AI design assistant functions, broadening AI application scenarios, improving user creation efficiency and convenience, and strongly promoting user stickiness and payment conversion. At the level of contract debt, the company's contract debt at the end of Q3 was 1.99 billion yuan, YoY +16.30%, which strongly supports the company's future growth. The WPS user base is rising steadily. Combined with AI driving an increase in payment rates, the C-side subscription growth rate can be expected to increase further.

The transformation of institutional subscriptions to SaaS has temporarily put pressure on revenue growth, and the Xinchuang business has driven an increase in agency licensing revenue. In Q3, the company achieved institutional subscription/agency authorization revenue of 0.248/0.143 billion yuan in a single quarter, YoY +0.02%/+8.97%. At the institutional subscription level, the company continues to promote the transformation of business to SaaS, develop large-scale private enterprises and local state-owned enterprises in the public cloud market, continue to increase the share of related revenue, and further upgrade the revenue model. Currently, the institutional subscription business is shifting from revenue growth to joint revenue+contract debt growth, which will lay a solid foundation for the continued growth of the forward institutional subscription business. At the level of institutional licensing, the company fully laid out the sinking market in the field of party, government, and credit innovation, and the increase in related orders led to an increase in revenue from authorized domestic institutions.

The current introduction of a series of fiscal incremental policies will help boost government spending, and may support the growth of the credit innovation business.

The company continued to invest in research and development, and operating cash flow increased year-on-year. The company's sales/management/R&D expenses changed by -3.79%/-7.57%/+17.26% year-on-year in the first three quarters of 24 years, and sales/management/R&D expenses in the Q3 quarter changed +2.75%/-27.63%/+26.54% year-on-year, respectively. Recently, the company has continued to increase investment in AI and collaboration, leading to a relatively high increase in R&D expenses. The company's operating cash flow in Q3 increased 31.2% year on year. Among them, cash received from sales of goods and services increased by 24% year on year, higher than the Q311% revenue growth rate, mainly due to the company's net increase in contract liabilities of about 87.67 million yuan in a single quarter, far higher than about 8.66 million yuan in the same period in '23, reflecting the improvement in the quality of the company's operations and strengthening the sustainability of subscription growth.

Maintain a “Highly Recommended” investment rating. The WPS AI 2.0 function continues to expand, empowering the company's entire business line. AI strongly promotes user stickiness and payment conversion. At the “double subscription” level, the company's individual subscriptions are growing steadily, and the B-side is undergoing a deep transformation into SaaS subscription promotion, which will bring more continuous and predictable high-quality B-side revenue. Xinchuang's business increased in Q3. The introduction of a series of fiscal incremental policies will help boost government spending, or will support the growth of Xinchuang's business. The company's net profit for 24-26 is expected to be 1.497/1.887/2.372 billion yuan, maintaining a “highly recommended” investment rating.

Risk warning: Users' willingness to pay falls short of expectations, the technical level of AI models falls short of expectations, WPSAI's R&D progress falls short of expectations, the progress of Xinchuang replacement falls short of expectations, and downstream demand fluctuates.