Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 3.627 billion yuan, a year-on-year increase of 10.90%, achieved net profit to mother of 1.04 billion yuan, an increase of 16.41% year-on-year, and achieved 0.991 billion yuan in non-net profit, an increase of 15.16% over the previous year, and the performance continued to grow steadily.

The personal subscription business continues to grow, and AI functions continue to be iterated: in the first three quarters of 2024, the company's personal subscription business achieved revenue of 2.292 billion yuan, an increase of 20.48% over the previous year. AI has added writing/reading/data/design assistant functions to provide users with a more convenient and efficient creative experience, strongly promote user stickiness and payment conversion, and drive the steady growth of domestic personal office service subscription business. As of September 2024, the number of active devices for the company's main products reached 0.618 billion, up 4.92% year on year. Among them, the number of monthly active devices in the WPS Office PC version was 0.277 billion, up 6.95% year on year. The growth rate of subscription revenue continued to be much higher than the growth rate of active devices, reflecting a continuous increase in payment rates and ARPU values. We believe that on the C-side of WPS AI, individuals are willing to pay. As WPS AI functions are improved and commercialization gradually matures, the number of PC-side activity, payment rate, and ARPU value of personal businesses is expected to continue to increase in the future, and revenue growth is full of momentum.

The share of subscriptions for medium and large enterprises increased, and WPS AI helped 0.2 billion overseas users: In the first three quarters of 2024, the company's domestic institutional subscription revenue was 0.691 billion yuan, an increase of 3.74% over the previous year. The company promoted large-scale private enterprises and local state-owned enterprises in the public cloud market, and continued to increase the share of related revenue. Among them, Q3 increased 8.97% year-on-year in a single quarter; according to the company's official account, WPS AI reached 0.2 billion overseas users. As of September 2024, the company's contractual liabilities reached 1.99 billion yuan. We believe that with the launch and continuous improvement of the company's enterprise-level AI capabilities, the customer coverage, single customer value, and customer stickiness of the institutional subscription business are expected to increase significantly, with broad prospects for long-term growth.

Investment advice: We are optimistic about AI's leapfrog increase in the company's product strength, and the resulting increase in the number of monthly active users, payment rates, and ARPU values. At the same time, the company's endogenous growth momentum continues to increase, profoundly benefiting from the digitalization and localization of China's office software. We expect the company's revenue for 2024-2026 to be 5.874/7.632/9.823 billion yuan, net profit to mother of 1.644/2.098/2.675 billion yuan, PE 74/58/46 times, maintaining the “gain” rating.

Risk warning: Technology development falls short of expectations, AI product implementation is delayed, and Xinchuang's progress falls short of expectations.