event overview

on October 26, Jinshan office released the third quarter report of 2023. In the first three quarters of 2023, the company achieved operating income of 3.27 billion billion yuan, an increase of 16.99 percent over the same period last year; net profit attributable to mother was 0.893 billion billion yuan, an increase of 9.86 percent over the same period last year; and net profit deducted from non-parent was 0.86 billion billion yuan, an increase of 29.85 percent over the same period last year.

Q3 performance grew steadily, with payment conversion and unit price rising. Q3 operating income was 1.098 billion yuan (+9.40%), net profit attributable to parent was 0.294 billion yuan (+0.18%), and net profit attributable to non-parent was 0.284 billion yuan (+13.36%). In terms of business, in the third quarter, ① the domestic personal office service subscription business revenue was 0.65 billion yuan (+25.64%), which was mainly due to the company's optimization of the whole line of product use experience, upgrading of member rights and interests system, and the continuous improvement of individual user payment conversion and customer unit price. As of September 30, 2023, the number of monthly active devices for the Company's major products was 0.589 billion (+1.90%), with the 0.259 billion number of monthly active devices for WPS Office PC (+8.82%) and the 0.327 billion number of monthly active devices for mobile (-2.68%).

② Revenue from domestic institutional subscription and service business is 0.248 billion yuan (+36.13%), which is mainly due to the company's continuous upgrading of digital office solutions and services, creating and copying benchmark cases for government and enterprise customers, and promoting the rapid growth of domestic institutional subscription and service business. ③ Revenue from authorized business of domestic institutions was 0.131 billion yuan (-41.72), mainly due to the high base in the same period last year and the lower-than-expected impact of credit orders in the party and government sectors in the current period, resulting in a year-on-year decline in authorized business of domestic institutions. ④ Revenue from Internet advertising and other businesses was 67.82 million yuan (-14.38), mainly due to the Company's emphasis on user experience and continuous adjustment of Internet advertising business. The company's overseas business maintained healthy growth.

the company insists on establishing a business through technology. in the first three quarters, the company invested 1.076 billion yuan in research and development, up 10.68 percent year on year, accounting for 32.90 percent of its operating income.

WPS AI access to Jinshan full line of products, strengthen cooperation with ecological partners AI and office software deep integration of Copilot can convert natural language into super productivity, greatly improve office efficiency and experience. On the 2023 Jinshan Office Technology Open Day, Jinshan Office officials announced that WPS AI, an intelligent office assistant based on a large language model, has been connected to all products of Jinshan Office, inviting users to experience full-component AI functions. Jinshan Office will restructure its office software with a large model to provide every user with a brand-new product experience in three aspects: AIGC (content creation), Copilot (intelligent assistant) and Insight (knowledge insight). As a ChatGPT-like application of collaborative office track, WPS AI has been connected to WPS text, presentation, form, PDF, Jinshan document and other product lines to solve users' daily office problems in content generation, content understanding, instruction operation, etc. The company is the first to implement large language models at all ends, build stable Office infrastructure services, and provide a concise interaction framework, access guidelines and access standards for AI functions to ensure an intelligent product experience.

On October 17, Jinshan Office and HKUST Xunfei announced a strategic cooperation. The two sides will launch in-depth linkages in the fields of smart education, smart medical care, smart parks, and smart cities. According to the official public number, Jinshan Office and HKUST Xunfei have cooperated in the fields of terminal deployment, voice capability, copyright protection, education services, etc. More than 350000 teaching and research users have prepared lessons and coordinated research work on the HKUST Xunfei AI teaching and research platform supported by Jinshan Office Document Center. The company continues to make breakthroughs with ecological partners in the four areas of compatibility certification, scene deep cultivation, ecological co-construction, and program innovation.

investment suggestion:

Jinshan office is a leading office service manufacturer in China. benefiting from the continuous promotion of industry trust and the enhancement of intelligent product experience by AIGC technology, we expect the company to realize operating income of 47.64/62.26/8.045 billion yuan and net profit of 14.14/17.74/2.192 billion yuan in 2023-25. Maintain the buy-A investment rating and give a 12-month target price of 404.50 yuan, equivalent to 30 times PS in 2024.

risk tips:

core technology research and development is not as expected; product promotion and industrial ecological construction is not as expected.