occurrences

Jinshan Office released its 2024 three-quarter report. From January to September 2024, the company achieved revenue of 3.627 billion yuan, up 10.90% year on year; net profit to mother of 1.04 billion yuan, up 16.41% year on year; net profit after deducting non-return to mother of 0.991 billion yuan, up 15.16% year on year; gross margin was 85.10%, down 0.55 pct year on year. In the third quarter of 2024, the company achieved revenue of 1.214 billion yuan, up 10.53% year on year; net profit to mother 0.318 billion yuan, up 8.33% year on year; net profit after deducting non-return to mother 0.303 billion yuan, up 6.66% year on year; gross margin was 85.47%, up 0.66 pct year on year.

The personal subscription business and institutional licensing business grew steadily. The international business weighed on the company's domestic personal subscription business revenue of 0.762 billion yuan in the third quarter of 2024, +17.24%; domestic institutional subscription revenue was 0.248 billion yuan, +0.02% year over year; domestic agency licensing revenue was 0.143 billion yuan, +8.97% year over year; international and other business revenue was 0.061 billion yuan, -10.43% year over year. As of September 30, 2024, the number of monthly active devices for the company's main products was 0.618 billion, an increase of 4.92% over the previous year. Among them, the number of monthly active devices on the PC version of WPS Office was 0.277 billion, up 6.95% year on year; the number of monthly active devices on the mobile version was 0.338 billion, up 3.36% year on year.

R&D continues to invest in AI application functions. Xinchuang promotes authorized business growth. The company's R&D expenses for the first three quarters of 2024 were 1.262 billion yuan, +17.26% over the same period last year, and the R&D cost rate was about 34.78%.

The company continues to invest in R&D, and the WPS AI product matrix expands the application of new functions. During the reporting period, the company's WPS AI2.0 added AI writing assistants, AI reading assistants, AI data assistants, and AI design assistants to further promote user stickiness and payment conversion, and drive steady growth in the domestic personal office service subscription business. In the domestic institutional subscription and service business, the company invigorates large-scale private enterprises and local state-owned enterprises in the public cloud market to promote revenue model upgrades.

In terms of authorized business by domestic institutions, orders related to the sinking market in the field of party, government, and credit innovation drive business growth. International and other businesses declined due to the shutdown of domestic third-party commercial advertising businesses, which were affected by the base figure for the same period in 2023.

Investment advice

We expect the company's revenue for 2024-2026 to be 5.261/6.175/8.119 billion yuan, respectively, +15.48%/+17.38%/+31.47% year-on-year, net profit to mother of 1.517/1.775/2.318 billion yuan respectively, with year-on-year growth rates of 15.11%/17.03%/30.59%, EPS 3.28/3.84/5.01 per share, respectively, and a 3-year CAGR of 20.72%. Due to the company's product market position and in-depth AI layout, the product penetration rate and A RPU value are expected to increase and maintain a “buy” rating.

Risk warning: AI promotion falls short of expectations, customer demand falls short of expected risk, and market competition increases risk.