The company's institutional licensing business reached an inflection point in the third quarter. The leading card office software company is expected to benefit from the acceleration of Xinchuang in 2025. 2024Q3, the company's domestic institutional authorized business achieved revenue of 0.143 billion yuan, a year-on-year increase of 8.97%. Compared with the 10.14% year-on-year decline in the first half of 2024, the company ushered in an inflection point in the business. The reason for this is that in the third quarter, the company continued to closely track policy changes and customer needs, fully lay out the sinking market in the field of party, government, and credit innovation. The increase in related orders drove domestic institutions to license business growth. We believe that in 2027, the time will come for 100% replacement of state-owned enterprises. Driven by a new round of financial support and industry policies, 2025 is a critical period for the development of Xinchuang, and the Party, government and industry Xinchuang are expected to accelerate. According to Xinhua News Agency, based on the background of the rise of online offices, WPS has a share of more than 90% in the domestic mobile office software market. As the company with the best pattern in the WPS industry, while further deepening the market layout at all levels in the field of party, government, and information innovation, the company closely focuses on the actual replacement needs of key industries such as finance, energy, and communications, or continues to improve the authorized business orders of the company's institutions in 2025, and ushered in rapid growth in performance.

Jinshan WPS AI has entered the promotion stage, and the number of monthly active devices and willingness to pay has improved, laying the foundation for personal subscription business growth. 2024Q3, the company's domestic personal office service subscription business achieved revenue of 0.762 billion yuan, an increase of 17.24% year on year. In the first half of the year, the business grew 22.17% year on year, maintaining a continuous double-digit growth rate. The reason for this is that 2024Q3, the company's WPS AI 2.0 added AI writing assistants, AI reading assistants, AI data assistants, and AI design assistants, which provide users with a more convenient and efficient creative experience, strongly promote user stickiness and payment conversion, and drive steady growth in the domestic personal office service subscription business. Looking at the number of monthly active devices, 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. The number of monthly active devices on the WPSOffice PC version 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. By the end of 2024H1, the number of monthly active devices for the company's main products was 0.602 billion, up 3.08% year on year. The Q3 growth rate was 1.84 pct higher than 24H1. We believe that as WPS AI iterates and refines and enters an accelerated promotion period, the company is expected to simultaneously achieve a rapid leap in the number of users and an accelerated increase in members' willingness to pay.

The B-side business is developing overseas markets and is expected to achieve a breakthrough of zero to one. Amazon Web Services is an important partner of the company. In June of this year, the overseas version of WPS AI released by Jinshan Office was implemented based on the basic model provided by Amazon Bedrock, a model hosting platform based on Amazon Web Services. Thanks to the joint efforts of both parties, the company has successfully implemented a series of AI capabilities for the overseas version of WPS AI based on Amazon Bedrock, including AI writing, one-click PPT generation, etc., and is expected to be connected to Claude 3.5 in the future, bringing a smarter and more efficient office experience to users around the world. At present, the company has accumulated 0.2 billion monthly users overseas and has a solid foundation for development.

At the same time, for enterprise users, the company released the WPS 365 new office productivity platform, including WPSOffice, WPS AI Enterprise Edition, and WPS Collaboration, which unlocks the three capabilities of documents, AI, and collaboration, covering all of the organization's office needs. We believe that with the deepening of cooperation between the company and Amazon, the improvement in the efficiency of the launch of the overseas version of WPS AI, and the increase in the willingness of overseas users to pay, the company's overseas revenue is expected to usher in another breakthrough.

Investment advice. We believe that AI technology can increase users' dependence on office software and their willingness to pay, and that Xinchuang promotes the development of corporate institutional business. We expect the company's 2024-2026 revenue to be 5.245/6.585/8.315 billion yuan, net profit to mother of 1.475/1.841/2.401 billion yuan, and EPS of 3.19/3.98/5.19, maintaining a “buy” rating.

Risk warning: AI promotion falls short of expectations, paid user growth falls short of expectations, policy implementation falls short of expectations, etc.