It is deeply involved in the field of PDF electronic documents and has independent intellectual property rights. The company released Foxit PDF Reader with independent intellectual property rights in 2004. It is one of the earliest PDF software products in the world. The company has developed into an industry-leading software product and service provider in the field of PDF electronic documents. The company's products and services mainly include PDF editor and reader products, development platforms and tools, and PDF-related independent products that can be deployed to public clouds and enterprise private clouds. The products are suitable for application terminals such as desktop computers, tablets, smartphones, embedded devices and servers, and are widely used in many industries and fields such as government, energy, publishing, finance, law, education, medical care, manufacturing, construction, etc. PDF editors and readers are the company's core products, accounting for 81.55%, 83.44%, 82.74%, and 79.70% of revenue in 2020-2023, respectively.
The share of overseas revenue remains around 90%, and the North American region is the largest market. The company operates in regional markets around the world, and the share of overseas sales revenue has stabilized at around 90%. The share of overseas revenue in 2020-2023 was 90.65%, 90.73%, 90.30%, and 89.45%, respectively. According to the 2023 annual report, the North American regional market accounts for 56.53% of the company's total revenue, which is the company's main market; the European market is the company's second largest regional market, accounting for 23.57% of revenue; the Chinese market is the company's third largest market, accounting for 10.55% of revenue.
The dual transformation affected the 23-year apparent financial indicators, and 24Q1 revenue exceeded expectations. In terms of revenue, the company achieved operating revenue of 611 million yuan in 2023, up 5.33% year on year. The low revenue growth rate was mainly due to the company's deepening and accelerated subscription transformation. On the one hand, the low revenue growth rate was mainly due to the decline in permanent license revenue during the transformation process, and on the other hand, revenue was confirmed in installments over a period rather than one-time confirmation under the subscription model, and the subscription price for the core product PDF editor was lower than the price of a permanent license. Judging from the annual comprehensive business volume (annual comprehensive business amount = annual authorized business revenue +σ (subscription business ARR* price conversion factor)), the company achieved an annual comprehensive business volume of 850 million yuan in 2023, an increase of 20.05% over the previous year, and the growth rate is good. The 24Q1 company achieved revenue of 169 million yuan, an increase of 16.87% year on year, and an increase of 13.14% year on year after excluding the impact of foreign exchange fluctuations.
In terms of profit, in 2023, the company achieved net profit to mother - 91 million yuan, the same period in 2022 - 0.2 billion yuan; net profit without return to mother - 179 million yuan; the company's main products still maintained a good profit level, but due to the company's layout of new products, a large amount of R&D expenses were invested, and the new products were still in the R&D period or initial market promotion period, which did not cover current expenses, causing losses. In 24Q1, net profit attributable to mother was 10.609 million yuan, and losses were reduced by 6.47% year on year; net profit not attributable to mother was 20.6562 million yuan, narrowing by 21.55% year on year, mainly due to the increase in the company's operating income and the year-on-year decline in estimated investment losses of associated enterprises.
The company's dual transformation is progressing well, and the amount of business value has increased steadily. In 2023, the company achieved subscription revenue of 216 million yuan, an increase of 75.55%; subscription revenue accounted for 35% of revenue, a significant increase of 21% compared with subscription revenue; achieved subscription business ARR (annual recurring revenue) of 250 million yuan, an increase of 80.60% over the end of the year; achieved subscription-related contract liabilities of 161 million yuan, an increase of 71.30% over the previous year; and the overall subscription renewal rate for the company's core products in 2023 was about 91%. The 24Q1 company achieved subscription revenue of 74 million yuan, an increase of 73.30% over the previous year, and subscription revenue accounted for 44% of revenue; achieved ARR (annual recurring revenue) of 281 million yuan in the subscription business, an increase of about 13% over the end of 23, and a significant increase in ARR in a single quarter. In terms of channel transformation, the company further promoted channel transformation, maintained relationships with key channels, and continued to expand new channels to cover institutional customers in different countries and regions through the establishment of major regional market channel networks, and ultimately achieved the goal of broadening the sales radius to reach end users. In 2023, the company achieved revenue of 208 million yuan, an increase of 22.39% over the previous year, accounting for about 34% of revenue; 24Q1 achieved revenue from channels of 63 million yuan, an increase of 49.01% over the previous year, accounting for about 37% of revenue.
Acquire Foxin Kunpeng to strengthen domestic business layout development. The company plans to use the overraised capital (including interest income, financial management income, etc.) of 90,2381 million yuan to acquire 38.2749% of Foxin Kunpeng's shares. After the acquisition is completed, the company will hold 73.2436% of Fuxin Kunpeng's shares and gain control of the target company. Foxin Kunpeng's main business is R&D and sales of OFD office suite software and other products, mainly serving the Xinchuang market and the localized market. The company will take advantage of Foxin Kunpeng's business advantages to quickly open up the Xinchuang OFD market, further develop the PDF+OFD document business layout, and also achieve collaboration between the market and customer resources by opening up terminal portals and sharing customer channels. We believe that the company's acquisition of Foxin Kunpeng based on a long-term strategy has further improved its market layout and further strengthened product diversification, which is conducive to enhancing the company's ability to operate continuously and withstand risks.
As a format standard for electronic document exchange, PDF has good prospects for the industry. The trend of paperless and electronic office in enterprises is becoming more and more obvious and popular, and the demand for electronic document exchange and distribution is growing rapidly. The PDF format can resolve the contradictions between many file formats, different usage environments and layout guarantees. It has various characteristics and advantages such as safety and convenience. It has become a format standard for electronic document exchange and is widely used in various fields. According to Foxit Software's 2023 annual report, citing Adobe's financial data, the ARR (annual recurring revenue) of Document Cloud (i.e. PDF document management business) increased from US$791 million in 2018 to US$2.81 billion in 2023, with a compound annual growth rate of 28.86% during the period. The growth trend is obvious, and demand for the document software market is strong. According to Foxit Software's 2023 annual report, citing public information from Adobe, the potential market size (TAM) for PDF document-related businesses could reach $32 billion by 2024.
AI capabilities continue to iterate, moving from a document tool vendor to an intelligent document processing vendor. The company's overseas version of PDF Editor launched the restructured and upgraded subscription-based PDF Editor Suite and PDF Editor Suite Pro, which include the three major product forms of Windows and Mac desktop, mobile, and cloud. It also integrates cloud service functions such as Foxit eSign and AI Assistant, providing customers with a more comprehensive, richer and smoother integrated product experience. The company continues to iteratively optimize the AI functions integrated into the core PDF editor. The implemented conventional document interaction functions such as document summarization, content rewriting, guaranteed translation, grammar & spelling correction can go through many iterations, and the product experience continues to improve. The company is also gradually AIizing PDF functional instructions through the Smart PDF Commands function, which can implement more than 100 AI-based instructions, covering typical functions such as page replacement, page splitting, and document format conversion.
Profit forecasting and investment advice. We believe that the company is a leading PDF company. It has leading advantages in products, channels and brands, and is determined to deepen the transformation of both subscriptions and channels, which will help the company's long-term development. PDF editors and readers are the company's core products. We believe that the company's subscription transformation is beginning to bear fruit in the short term. We expect the PDF editor and reader business growth rate to be 10%/15%/20% in 2024-2026, 40%/30%/30%, respectively, and the growth rate of enterprise document automation solutions will be 15%/16%/18% respectively; we expect the company's revenue in 2024-2026 to 687/798/961 million yuan, a year-on-year increase 12.5%/16.1%/20.4%; net profit to mother was -0.11/0.36/0.89 billion yuan, respectively, up 88.0%/435.0%/145.0% year-on-year. Referring to comparable companies, the company was given 9-10 times the 2024 dynamic PS, with a reasonable value range of 67.59-75.10 yuan. For the first time, coverage was given, and a “superior to the market” rating was given.
Risk warning. Demand falls short of expectations; transformation progress and results fall short of expectations; AI implementation falls short of expectations.