Event:

On October 25, 2024, the company released its third quarter report for 2024. In the first three quarters of 2024, the company's revenue was 3.627 billion yuan, a year-on-year increase of +10.9%; net profit attributable to the parent company was 1.04 billion yuan, a year-on-year increase of 16.41%; The net profit attributable to the parent company after deducting non-profits was 991 million yuan, a year-on-year increase of +15.16%.

In 2024Q3, the company's revenue was 1.214 billion yuan, a year-on-year increase of +10.53%; net profit attributable to the parent company was 318 million yuan, a year-on-year increase of +8.33%; The net profit attributable to the parent company after deducting non-profits was 303 million yuan, a year-on-year increase of +6.66%.

Investment Highlights:

The growth rate of personal subscription and institutional authorization is considerable, and the driving force of AI+ information innovation is expected to be strengthened in 2024Q3, and the company's domestic personal office subscription business/domestic institutional subscription and service business/domestic institutional licensing business revenue is 7.62/2.48/1.43/ billion yuan, respectively, +17.24%/+0.02%/+8.97% year-on-year.

In terms of personal business, the company's WPS AI 2.0 added AI writing assistant, AI reading assistant, AI data assistant, and AI design assistant to provide users with a more efficient creative experience, promote user stickiness and payment conversion, and drive the growth of domestic personal office service subscription business. As of September 30, 2024, the number of monthly active devices of the company's main products was 618 million, a year-on-year increase of +4.92%, of which the number of monthly active devices of WPS office PC version was 277 million, a year-on-year increase of +6.95%; the number of mobile monthly active devices was 338 million, a year-on-year increase of +3.36%; In terms of institutional subscriptions: Relying on the improved WPS 365, the company has developed large-scale private enterprises and local state-owned enterprises in the public cloud market, accounting for 20% of its revenue in Q3 (+3.6pct month-on-month), promoting the further upgrading of the revenue model and laying the foundation for the long-term development of the domestic institutional subscription business. In terms of institutional licensing business: The company closely tracked policy changes and customer needs, laid out the sinking market in the field of party and government information innovation, and the increase in related orders drove the growth of domestic institutional licensing business.

In the first three quarters of 2024, the company's sales/management/R&D expense ratios were 18.93%/8.65%/34.78%, respectively, a year-on-year increase of -2.89/-1.73/+1.88pct; In 2024Q3, the company's sales/administrative/R&D expense ratios were 20.14%/7.85%/37.41%, respectively, a year-on-year increase of -1.53/-4.13/+4.74pct. The company's sales and administrative expense ratio has declined sharply year-on-year, and we believe that the company's achievements in reducing costs and increasing efficiency are gradually emerging; R&D investment increased year-on-year, laying a solid foundation for long-term development.

On October 10, 2024, WPS AI Companion Writing was launched, as an intelligent writing tool driven by the AI Agent paradigm, different from traditional large models, AI Agent has the ability to think independently and call tools to gradually complete a given goal, which has obvious advantages in improving work efficiency and reducing operating costs. Previously, in July 2024, WPS AI 2.0 was officially released, and it has achieved a comprehensive evolution in the personal edition, enterprise edition, and government edition. In June 2024, the company released the overseas version of WPS AI, which is based on the support of Amazon Web Services generative AI technology and services to help 200 million overseas users work efficiently.

The continuous implementation of AI agents is expected to accelerate the reconstruction of the future office form. On October 21, 2024, Microsoft announced that it will launch 10 autonomous AI agents on its Dynamics 365 platform; IBM recently released the Granite 3.0 family of models in an attempt to build a comprehensive enterprise AI ecosystem. We believe that as the AI revolution deepens, AI is driving the continuous transformation of the office software field and accelerating the reshaping of the future of work.

Profit forecast and investment rating: The company is a leading domestic office software, WPS AI commercialization promotion + information innovation deepening development, the company's business is expected to achieve continuous growth in the future. It is estimated that in 2024-2026, the company's revenue will be 52.42/64.39/8.035 billion yuan, the net profit attributable to the parent company will be 15.34/19.42/2.556 billion yuan, the EPS will be 3.32/4.20/5.53 yuan/share, and the corresponding PE of the current stock price will be 80/63/48X, maintaining the "buy" rating.

Risk warning: The macroeconomic downturn affects downstream demand, the commercialization of WPS AI is less than expected, the research and development of new technologies is less than expected, market competition is intensifying, and the risk of a single product is not expected.