The 2024 results are in line with our expectations

Kingsoft Office announced its 24-year annual report, with annual revenue of 5.121 billion yuan, +12% year-on-year; The net profit attributable to the parent company was 1.645 billion yuan, a year-on-year increase of +24.9%. In a single quarter, the company's revenue in 4Q24 was 1.49 billion yuan, a year-on-year increase of 16%, and the net profit was 600 million yuan, a year-on-year increase of 43%. In terms of contractual liabilities, the total of all types of contractual liabilities for the year reached RMB3.17 billion, representing a net increase of RMB380 million in 4Q24 compared with 3Q24, and the full-year results were in line with our and market expectations. The annual report replaces the revenue split caliber and highlights the business product positioning: the company will divide the revenue from the original business model to the installation of products, and now the revenue split caliber is WPS personal business + WPS 365 business + WPS software business + other business, in order to better highlight the positioning of the company's products.

Development Trend

The domestic personal business focuses on the improvement of users and payment, and the overseas business explores new growth points. WPS personal business = domestic WPS members (formerly personal subscription business) + overseas WPS members, WPS personal business revenue of 3.28 billion yuan in 24 years, a year-on-year increase of 18%; Among them, the domestic WPS membership revenue was 3.1 billion yuan, a year-on-year increase of 17%, but the Q4 revenue was 810 million yuan, a year-on-year increase of 8%. The company's Q4 domestic WPS personal subscription growth is under pressure, and we believe that the company has made greater preferential activities in the short term in order to ensure the growth of the number of users and payment rates. In terms of the operating data of WPS's personal business, the global MAD of monthly active devices reached 632 million in 24 years, a year-on-year increase of +6%; Among them, the PC MAD reached 290 million, a year-on-year increase of +10%; The cumulative number of paid members in China reached 41.7 million, a year-on-year increase of +17%, and the monthly active data and paid data were relatively bright. Overseas, we calculate that the company's overseas WPS membership revenue in 2024 will be about 180 million yuan, a year-on-year increase of 42%. In 2025, we believe that the company will further strengthen WPS's overseas strategy, and overseas is expected to become the next important revenue growth point for the company.

WPS 365 focuses on making efforts to achieve a breakthrough in the mid-waist market. The WPS 365 business is mainly composed of 365-related products in the original institutional subscription business, including pure public cloud and private cloud deployment, with a revenue of 440 million yuan in 24 years, a year-on-year increase of +149%. We believe that this part of the business will also be the focus of the company's 25-year efforts, with the advantage of cost performance and AI functions to strive for more market share that originally belonged to Microsoft, we expect the company's WPS 365 business revenue to achieve rapid growth in 2025.

Profit Forecast and Valuation

Considering that the company's personal business and AI strategy pay more attention to user penetration and accumulation, and the short- and medium-term dimensions are relatively diluted for commercial realization, we slightly lower the company's revenue forecast for 2025/2026 by 3%/5% to 5.988 billion yuan/7.031 billion yuan, and correspondingly lower the company's net profit forecast for 2025/2026 by 2%/2% to 1.833 billion yuan/2.225 billion yuan. We maintain our Outperform rating with a TP of $400 based on 26x 2026 P/S, representing an 18% upside from current share price. The current share price corresponds to 26/22 times 2025/2026 P/S.

Risks:

The iteration and commercialization of WPS AI products are not as expected; The localization of orders fell short of expectations.