Key points of investment
Incident: 2023Q4 achieved operating income of 2.31 billion yuan, yoy +9.36%, qoq +12.16%, net profit to mother of 205 million yuan, yoy +339.60%, and qoq +621.03%. The performance was basically in line with our previous expectations.
Game business: “World of Sword Man: Origins” contributed month-on-month, and we look forward to the performance of new and old games. 2023Q4's online game and other revenue was 1,024 billion yuan (yoy +0.21%, qoq +6.56%), accounting for 44.34% of revenue. Revenue remained flat year on year. The month-on-month increase was mainly due to the increase in the contribution of the domestic launch of “World of Sword Man: Origins” in September, partly offset by a natural decline in game stock. In 2023, the company's flagship game “Sword Net 3” reached a new high in annual revenue. The company continued its long-term operating philosophy, continued to iterate game content and upgrade experiences, launched the flagship beta version update in October 2023 to achieve comprehensive image quality upgrades, and will launch the mobile “Sword Net 3 Unbounded” within 2024 to achieve multi-terminal data exchange, serve players' fragmented time and promote the return of old players. The annual performance is worth looking forward to. In addition, the company is actively exploring new categories. The sci-fi mecha battle game “Unrestricted Machine” is expected to be launched within the year. We are optimistic that the company will continue to further cultivate superior categories and continue to explore new tracks, which is expected to drive steady growth in the game business.
Office business: Personal and institutional businesses are growing steadily, and the commercialization of AI is worth looking forward to. 2023Q4's office software and service revenue was 1,286 billion yuan (yoy +17.94%, qoq +17.06%), accounting for 55.65% of revenue. The year-on-year increase in revenue was mainly due to growth in personal office subscription business and institutional subscription business. Among them, personal business growth was mainly due to payment conversion and customer unit price growth driven by rich member benefits and membership system upgrades. Institutional business growth was due to cost reduction and efficiency of government and enterprise users and increased demand for digital transformation. As of 2023Q4, the number of monthly active devices for the company's main office software products was 598 million, up 4.1% year on year and 1.5% month on month. Looking ahead to 2024, we are optimistic that the company's personal and institutional office subscription business will continue to grow steadily. WPS AI will upgrade the user experience, which is expected to increase the willingness of individual and institutional customers to pay and further open up space for the company's growth. The 2023Q4 company WPS AI has begun official public testing. The company plans to start paid grayscale testing in the near future, and to start charging one after another throughout the year.
Profit forecast and investment rating: We are optimistic that the company's office business growth potential will continue to be unleashed. We have adjusted our previous profit forecast and added the 2026 forecast. The company's EPS is expected to be 0.84/0.96/1.19 yuan respectively in 2024-2026 (0.84/1.15 yuan before 2024-2025, calculated based on the latest diluted share capital), corresponding to the current stock price PE 27/24/19 times, respectively. We are optimistic about the steady growth of the company's game business stock, look forward to breakthroughs on new tracks, and are optimistic about long-term office business and AI space, and maintain a “buy” rating.
Risk warning: New tours fall short of expectations, industry supervision, office business progress falls short of expected risks