Key investment points

Xinchuang deepened implementation. Domestic operating systems led to an increase in WPS share. Since 2023, Xinchuang has entered the stage of deepening implementation. Party and government, and Xinchuang in the eight key industries have further deepened, and other industries such as manufacturing have also begun to launch Xinchuang. Trillion treasury bonds and localized bonds are expected to support Xinchuang.

Microsoft Office occupies market share with the advantage of pre-installed Windows systems. Currently, WPS products are sufficient to replace Office. As the market share of domestic operating systems increases, the WPS share is expected to continue to expand.

The institutional business is booming

In 2023, the company launched WPS 365 to simultaneously provide enterprises with documents, AI, and collaboration services through SaaS services to meet the office needs of an organization. WPS 365 can meet the two scenarios of enterprise data security protection and collaborative work that are very different from personal devices. For party and government customers, the company invests in the field of official documents to provide dark horse intelligent proofreading and document layout functions. In recent years, there has been a clear trend of SaaS for corporate institutional customers. The share of institutional subscriptions in revenue increased from 13.6% in 2021 to 21.0% in 2023. In the future, it has become a trend for big models to go deep into enterprises. Since big models have high privatization deployment costs, it is expected that more institutional customers will go to the cloud.

AI continues to upgrade, bringing new experiences

Currently, WPS AI has been upgraded to 2.0, and there are corresponding versions for individual, enterprise, party and government customers. For enterprise customers, WPS AI can use its internal documents to build a private knowledge base to make better use of enterprise data assets. This B-side AI idea has been recognized by enterprise customers. In addition, the beta version of WPS Lingsai is online. In addition to regular large model functions, you can directly read content in WPS cloud documents without users uploading them again, bringing a convenient experience.

Profit forecasting and valuation

The company's 2024-2026 revenue is expected to be 5.244, 6.451, 7.925 billion yuan, up 15.11%, 23.01%, and 22.84% year-on-year; net profit to mother is 1.549, 1.855, and 2.369 billion yuan, up 17.58%, 19.74%, and 27.71% year-on-year. China Software, Damon Data, Nastar, iFLYTEK, and Wanxing Technology were selected as comparable companies. Using December 9, 2024 as the valuation date, comparable companies unanimously expected an average PE value of 108 times in 2025, and the company's PE corresponding to 78 times in 2025, maintaining a “buy” rating.

Risk Alerts

AI product development and implementation fell short of expectations, downstream customer IT expenses fell short of expectations, market competition increased risks, and the progress of Xinchuang fell short of expectations.