Incidents:

On October 25, 2024, the company released the 2024 three-quarter report. In the first three quarters of 2024, the company's revenue was 3.627 billion yuan, +10.9%; net profit to mother was 1.04 billion yuan, 16.41% YoY; net profit after deduction was 0.991 billion yuan, +15.16% YoY.

2024Q3, the company's revenue was 1.214 billion yuan, +10.53% YoY; net profit to mother was 0.318 billion yuan, +8.33% YoY; net profit after deduction was 0.303 billion yuan, +6.66% YoY.

Investment highlights:

The growth rate of personal subscriptions and institutional licensing is impressive. AI+ Xinchuang's driving force is expected to increase in 2024Q3. The company's domestic personal office subscription business/domestic institutional subscription and service business/domestic agency licensing business revenue was 7.62/2.48/ 143/ yuan respectively, +17.24%/+0.02%/+8.97% over the same period last year.

Personal business aspect: The company's WPS AI 2.0 adds AI writing assistants, AI reading assistants, AI data assistants, and AI design assistants to provide users with a more efficient creative experience, promote user stickiness and payment conversion, and drive the growth of domestic personal office service subscription business. As of September 30, 2024, the company's main products were 0.618 billion monthly active devices, +4.92%, of which the number of monthly active devices in the WPS Office PC version was 0.277 billion, +6.95%; the number of mobile monthly active devices was 0.338 billion, +3.36%; in terms of institutional subscriptions: the company relied on more complete WPS 365 to develop large-scale private enterprises and local state-owned enterprises in the public cloud market, accounting for 20% of Q3 revenue (accounting for +3.6 pct. ), promote further upgrading of the revenue model and lay the foundation for the long-term development of domestic institutional subscription business; in terms of institutional licensing business: the company closely tracks policy changes and customer needs, lays out a sinking market in the field of party, government and credit innovation, and the increase in related orders drives the growth of domestic institutional licensing business.

Results of improving quality and efficiency have been shown. In the first three quarters of 2024, the company's sales/management/ R&D expense ratios were 18.93%/8.65%/34.78%, respectively, -2.89/-1.73/+1.88pct; in 2024Q3, the company's sales/management/ R&D expenses rates were 20.14%/7.85%/37.41%, respectively, -1.53/-4.13/+4.74pct. The company's sales and management expenses rate showed a sharp year-on-year decline. We believe that the company's results in reducing costs and increasing efficiency are gradually showing; R&D investment increased year-on-year, laying a solid foundation for long-term development.

WPS AI is steadily advancing commercialization, and AI Agent is being implemented at an accelerated pace on October 10, 2024. As an intelligent writing tool driven by the AI Agent paradigm, unlike traditional large models, AI Agent has the ability to think independently and call tools to gradually complete a given goal. The advantages of improving work efficiency and reducing operating costs are particularly obvious. Previously, in July 2024, WPS AI 2.0 was officially released and fully evolved in the personal version, enterprise version, and government version. In June 2024, the company released the overseas version of WPS AI, which is based on the support of Amazon Web Technology's generative AI technology and services to help 0.2 billion overseas users work efficiently.

AI agents continue to be implemented, which is expected to accelerate the restructuring of future office formats. On October 21, 2024, Microsoft announced that it will launch 10 autonomous AI intelligent agents (Agents) on its Dynamics 365 platform; IBM recently released the Granite 3.0 series model in an attempt to build a comprehensive enterprise AI ecosystem. We believe that with the deepening development of the AI revolution, AI is driving the continuous transformation of the office software sector and accelerating the restructuring of future office methods.

Profit forecast and investment rating: The company is a leading domestic office software company. WPS AI commercialization promotion+ Xinchuang deepens development, and the company's business is expected to continue to grow in the future. The company's revenue for 2024-2026 is expected to be 5.242/6.439/8.035 billion yuan, net profit to mother is 1.534/1.942/2.556 billion yuan, EPS is 3.32/4.20/5.53 yuan/share, respectively. The PE corresponding to the current stock price is 80/63/48X, respectively, maintaining a “buy” rating.

Risk warning: The macroeconomic downturn affects downstream demand, commercialization of WPS AI falls short of expectations, new technology research and development falls short of expectations, increased market competition, single product risks, etc.