Core views

In 2023, the company achieved operating income of 4.556 billion yuan, an increase of 17.27% over the previous year, and realized net profit of 1,318 billion yuan, an increase of 17.92% over the previous year. In the first quarter of 2024, the company achieved revenue of 1,225 million yuan, an increase of 16.54% over the previous year; realized net profit of 367 million yuan, an increase of 37.31% over the previous year, and the profit growth rate exceeded expectations. As the company fully embraces AI transformation, the C-side has clearly set pricing and entered grayscale testing; the B-side released a new WPS365 to improve office productivity through the three functions of AI Hub (smart dock), AI Docs (intelligent document library), and CoPilotPro (intelligent enterprise assistant). We believe the company is expected to achieve AI commercialization revenue in 2024, help increase the number of users and customer unit prices, and consolidate its dominant position. According to the company's performance for the first quarter of 2023 and 2024, we adjusted the profit forecast for 2024-2025 and added the 2026 forecast. The estimated revenue is $55.19/70.97/9.198 billion yuan respectively, up 21.14%/28.58%/29.60% year-on-year respectively, and net profit to mother is 15.96/20.01/2,598 billion yuan, up 21.12%/25.39%/29.80% year-on-year, respectively, corresponding to PE 84/67/52 times, maintaining the “buy” evaluation grade.

occurrences

The company announced the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved operating income of 4.556 billion yuan, an increase of 17.27% over the previous year; achieved net profit of 1,318 billion yuan, an increase of 17.92% over the previous year; realized net profit without deduction of 1,232 billion yuan, an increase of 34.45% over the previous year. In the first quarter of 2024, the company achieved operating income of 1,225 million yuan, a year-on-year increase of 16.54%; realized net profit of 367 million yuan, an increase of 37.31% over the previous year; and realized net profit of 352 million yuan without return to mother, an increase of 40.56% over the previous year.

Brief review

The 1Q24 profit growth rate exceeded expectations, and the cost management was effective. In 2023, the company achieved operating income of 4.556 billion yuan, a year-on-year increase of 17.27%; achieved net profit of 1,318 billion yuan, an increase of 17.92% over the previous year; realized net profit without deduction of 1,232 billion yuan, an increase of 34.45% year-on-year, in line with expectations. 1Q24 achieved operating income of 1,225 million yuan, an increase of 16.54% year on year; realized net profit of 367 million yuan, an increase of 37.31% year on year; realized net profit without return to mother of 352 million yuan, an increase of 40.56% year on year, and profit growth rate exceeded expectations. On the cost side, the company's 1Q24 sales/management/R&D/finance expense ratios were 17.62%/9.22%/33.03%/-1.11%, respectively, -6.11/-0.72/-0.75/+2.51 pct, respectively. The cost management was very effective.

The dual subscription strategy continued, and the Xinchuang business resumed growth. 1Q24's C-side subscription business revenue was 734 million yuan, up 24.80% year on year; B-side subscription revenue was 242 million yuan, up 13.57% year on year; B-side licensing business revenue was 194 million yuan, up 6.31% year on year. Among them, the company's dual subscription development strategy continues. C-side subscriptions enhance user stickiness and payment conversion by enriching membership benefits, B-side subscriptions launched the WPS 365 new office productivity platform to promote a deep transformation of the sales model; the institutional licensing business was driven by new purchase orders in the Party, government, and credit innovation sector, and revenue recovered. In addition, the company's total contract liabilities and other liabilities reached 2,582 billion yuan, an increase of 21.84% year on year, a slight decrease of 2.14% from the previous month, and remained stable overall.

AI empowers both end markets, and commercialization continues to advance. WPS AI anchors the three strategic directions of AIGC (content creation), Copilot (intelligent assistant), and Insight (knowledge insight), and is committed to accelerating the trend of digital office development. On the C-side, WPS AI began entering grayscale testing on March 25, and WPS AI members/conference members were priced at 248/348 yuan per year (discounted price of 188/268 yuan), and commercialization accelerated; on the B-side, the company released a new WPS 365 on April 9 to help enterprises build exclusive brains and improve office productivity from the three aspects of AI Hub (smart base), AI Docs (intelligent document library), and Copilot Pro (intelligent enterprise assistant). With the gradual iteration of the big model, the company's WPS AI capabilities are expected to improve, and the commercialization of superimposed company products has gradually been implemented. It is expected that the B-side and C-side will enjoy AI development dividends together, ushering in a period of performance growth.

Investment advice: As the company fully embraces AI transformation, the C-side has clearly set pricing and entered grayscale testing; the B-side released a new WPS 365 to improve office productivity through the three functions of AIHub (smart dock), AI Docs (intelligent document library), and Copilot Pro (intelligent enterprise assistant). We believe the company can achieve AI commercialization revenue in 2024, help increase the number of users and customer unit prices, and consolidate its dominant position. According to the company's results for the first quarter of 2023 and 2024, we adjusted the profit forecast for 2024-2025 and added the 2026 forecast. The estimated operating revenue is $55.19/70.97/9.198 billion yuan, respectively, up 21.14%/28.58%/29.60% year-on-year, and net profit to mother is 15.96/20.01/2,598 billion yuan, up 21.12%/25.39%/29.80% year-on-year respectively, corresponding to PE 84/67/52 times, maintaining “buying” ratings.