Core views

Incident: The company released its report for the third quarter of 2024. In the first three quarters of 2024, the company achieved operating income of 3.627 billion yuan (+10.90%), net profit of 1.04 billion yuan (+16.41%), net non-net profit of 0.991 billion yuan (+15.16%), net operating cash flow of 1.079 billion yuan (+14.91%), and contract liabilities of 1.99 billion yuan (+16.30%). In a single quarter of 202403, the company achieved operating income of 1.214 billion yuan (+10.53%), net profit to mother of 0.318 billion yuan (+8.33%), deducted non-net profit of 0.303 billion yuan (+6.66%), and net operating cash flow of 0.451 billion yuan (+31.20%).

The personal subscription business maintained steady growth, and Xinchuang's business picked up: in terms of revenue structure, 2024Q3, the domestic personal office service subscription business achieved revenue of 0.762 billion yuan (+17.24%), maintaining steady growth; domestic institutional subscription and service business achieved operating income of 2,4.8 billion yuan (+0.02%); domestic agency authorized business achieved revenue of 0.143 billion yuan (+8.97%), and the growth rate changed from negative to positive, mainly benefiting from the decline in Xinchuang business: international and other businesses achieved business growth Revenue of 0.061 billion yuan (-10.43%).

R&D remains high, and sales and management expenses are reasonably controlled: 2024Q3, the company's gross margin was 85.47%, an increase of 0.66 pcts over the previous year. In terms of cost ratio, the company's sales/management/R&D cost rates were 20.14%/7.85%/37.41%, respectively, -1.53pct/-4.14pct/+4.73pct, respectively. Sales and management expenses are controlled reasonably, and R&D investment is continuously increased to enhance product competitiveness.

Monthly activity indicators are growing faster, and AI products continue to be optimized and commercialized: 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 active devices in the WPSOfficePC version was 0.277 billion yuan per month, an increase of 6.95% over the previous year. During the reporting period, the company added AI writing assistants, AI reading assistants, AI data assistants, and AI design assistants to WPSAI 2.0 to improve the usability of AI products and help increase user stickiness to achieve ARPU and payment rates. The future can be expected.

Investment advice: We expect the company to achieve revenue of 5.177/6.204/7.741 billion yuan in 2024-2026, up 13.63%, 19.85%, and 24.77% year-on-year; net profit to mother will be 1.518/1.825/2.247 billion yuan, respectively, up 15.18%, 20.22%, and 23.16%; EPS will be 3.28/3.94/4.85 yuan, respectively. The current stock price is 78.56/ 65.35/53.06 times, maintaining the “Recommended” rating.

Risk warning: the risk that institutional subscription demand falls short of expectations, the risk that Xinchuang's progress falls short of expectations, and the risk that the availability and demand for AI products falls short of expectations.