Incident: Recently, the company released its report for the third quarter of 2024. In the first three quarters, the company achieved operating income of 3.627 billion yuan, up 10.90% year on year; net profit attributable to parent company owners was 1.04 billion yuan, up 16.41% year on year; net profit attributable to parent company owners deducted non-recurring profit and loss of 0.991 billion yuan, an increase of 15.16% year on year. In the third quarter of a single quarter, the company achieved operating income of 1.214 billion yuan, an increase of 10.53% over the previous year; net profit to mother was 0.318 billion yuan, an increase of 8.33% over the previous year.

The performance was in line with expectations, and all businesses grew steadily. 1) Overall, in the third quarter, the company achieved operating income of 1.214 billion yuan, an increase of 10.53% over the previous year; net profit to mother was 0.318 billion yuan, an increase of 8.33% over the previous year.

The company's performance continued to grow steadily under external pressure, demonstrating its operating strength. 2) In terms of revenue by business, the subscription business grew steadily, and the licensing business picked up steadily. During the reporting period, domestic personal office service subscription business revenue was 0.762 billion yuan, up 17.24% year on year; domestic institutional subscription and service business revenue was 0.248 billion yuan, up 0.02% year on year; domestic agency licensing business revenue was 0.143 billion yuan, up 8.97% year on year.

In terms of personal business, the company launched AI functions to enhance user experience. On the B-side, it expanded large-scale private enterprises and local state-owned enterprises to promote steady growth in the subscription business. On the G-side, the company grasped the trend of sinking, driving a steady recovery in the licensing business of domestic institutions. Various businesses are expanding steadily, and we are optimistic about the company's long-term development.

C-side users are growing steadily, and BG is grasping the trend of sinking. As of September 30, the monthly activity of the company's main products was 0.618 billion, up 4.92% year on year; among them, the number of monthly active devices on WPS Office PC and mobile devices increased by 6.95% and 3.36%, respectively, and the number of users grew steadily. In terms of BG-side customers, relying on its own product capabilities and the declining trend of Xinchuang, the company has increased related orders in the sinking market of local state-owned enterprises and Xinchuang, consolidating the BG-side business foundation.

The gross margin is maintained at a high level, and the ability to control expenses is strong. The company's gross margin for the first three quarters was 85.10%, a year-on-year decrease of 0.55pct, and remained stable at a high level. The company's sales/management/R&D expenses accounted for 18.93%/8.65%/34.78% of revenue in the first three quarters. The same period last year was 21.82%/10.38%/32.90%, respectively. Sales expenses declined. The wages of some personnel were adjusted from management expenses to R&D expenses. The total R&D expenses and management expenses were basically the same as last year, and the company's ability to control expenses was strong.

Company profit forecast and investment rating: The company's performance is in line with expectations, maintained steady growth under external pressure, strong operating capacity, steady growth in the company's C-side users, and AI empowered to enhance product strength; the BG side grasped the trend of sinking and picked up steadily. We expect the company's net profit for 2024-2026 to be 1,561, 21.45, and 2,781 billion yuan, respectively, with corresponding EPS of 3.38, 4.65 and 6.02 yuan, respectively. The current stock price corresponding to 2024-2026 PE values is 76.49, 55.65, and 42.93 times, respectively, maintaining the “Highly Recommended” rating.

Risk warning: AI product expansion falls short of expectations, C-side payment rates fall short of expectations, and Xinchuang's expansion falls short of anticipated risks.