Investment Highlights Deepening the implementation of information innovation, and the domestic operating system has driven the increase in the share of WPS Since 2023, information innovation has entered the stage of deepening the landing, and the party and government, 8 key industries have further deepened information innovation, and other industries such as manufacturing have also begun to innovate one after another, and trillions of national bonds and localized bonds are expected to bring support to information innovation.

Microsoft Office occupies a market share by virtue of the pre-installation advantage of the Windows system, and the current WPS products are enough to replace Office, and with the increase in the market share of domestic operating systems, the share of WPS is expected to continue to expand.

Institutional business is booming

In 2023, the company launched WPS 365 to provide enterprises with document, AI, and collaboration services at the same time through SaaS services to meet the office needs of an organization. WPS 365 can meet the two major scenarios that are different from personal terminals: the protection of enterprise data security and collaborative office. For party and government customers, the company focuses on the field of official documents, providing dark horse intelligent proofreading and document typesetting functions. In recent years, the company's institutional customers have become more SaaS, with institutional subscriptions accounting for 21.0% of revenue increasing from 13.6% in 2021 to 21.0% in 2023. In the future, it has become a trend for large models to penetrate into enterprises, and it is expected that more institutional customers will migrate to the cloud due to the high cost of private deployment of large models.

AI continues to be upgraded to bring new experiences

At present, WPS AI has been upgraded to 2.0, and there are corresponding versions for individuals, enterprises, and party and government customers. For enterprise customers, WPS AI can use its internal documents to build a private domain knowledge base, so as to make better use of enterprise data assets, and this B-side AI idea has been recognized by enterprise customers. In addition, the beta version of WPS has been launched, which allows users to directly read the content in WPS cloud documents without users uploading it again, in addition to the regular large model function, bringing a convenient experience.

Profit forecast and valuation

It is estimated that the company's operating income in 2024-2026 will be 52.44, 64.51 and 7.925 billion yuan, a year-on-year increase of 15.11%, 23.01% and 22.84%; The net profit attributable to the parent company was 15.49, 18.55 and 2.369 billion yuan, a year-on-year increase of 17.58%, 19.74% and 27.71%. China Software, Dameng Data, Ninestar, iFLYTEK, and Wondershare Technology are selected as comparable companies, with December 9, 2024 as the valuation date, the average consensus expected PE of comparable companies in 2025 is 108 times, and the company's PE corresponding to 2025 is 78 times, maintaining a "buy" rating.

Risk Warning:

The R&D and implementation of AI products are less than expected, the IT expenditure of downstream customers is less than expected, the risk of intensified market competition, and the progress of information innovation is less than expected.