Events:

the company released the first quarter report of 2023: in the first quarter of 2023, the revenue was 1.051 billion yuan, up 21.11 percent year-on-year; the net profit attributable to the parent was 0.267 billion yuan, up 6.58 percent year-on-year; and the net profit attributable to the parent was 0.25 billion yuan, up 24.37 percent year-on-year, exceeding market expectations.

Investment Points:

Dual subscription business continues to grow, with subscriptions accounting for 76.3 percent

In the first quarter of 2023, overall subscription revenue reached 0.802 billion billion yuan, up 40.48 percent year-on-year, accounting for 76.3 percent of total revenue, up 10.5pct year-on-year. In addition, overseas business development is good, advertising and other business stabilization and recovery. The details are as follows: 1) Domestic personal subscription: revenue of 0.589 billion yuan, up 38.17 YoY, the company continues to optimize the cloud and collaborative user experience, improve user stickiness, membership attributes continue to transform to long-term cycle, driving the domestic personal office service subscription business steady growth.

2) Domestic institutional subscriptions and services: revenue of 0.213 billion yuan, up 47.28 year-on-year. The company's digital office solutions and service quality continue to upgrade, and continue to promote the integration of government and enterprise cloud and collaborative office process.

3) Authorization of domestic institutions: revenue of 0.182 billion yuan, down 21.43 year on year. Mainly due to the high base in the same period last year and the impact of the progress of the current letter creation order. We are optimistic about the company's overall business growth in 2023Q2.

4) Internet advertising and others: revenue of 0.067 billion yuan, up 3.02 percent year-on-year. The company attaches importance to user experience and continues to adjust its Internet advertising business. The company's overseas business is developing well.

MAU, the main product, keeps growing and new membership system is released

As of March 31, 2023, the number of monthly active devices for the Company's major products was 0.589 billion, up 2.97 percent year-over-year. Among them, the number of monthly active devices in the WPSOffice PC version 0.252 billion, up 8.62 percent year-on-year. The number of monthly active devices in the mobile version 0.334 billion, down 0.60 percent year-on-year.

on April 17, 2023, the company's membership system was upgraded, merging the original WPS members, rice husk members and svip into WPS svip. WPS svip is divided into basic package (148 yuan/year) and Pro package (248 yuan/year). At the same time, the company continues to invest in the AIGC and LLM areas, and the product intelligence experience continues to improve. We believe that the introduction of the new membership system, overlay the company AIGC and other aspects of the ability to improve, member payment value and payment rate level is expected to continue to improve.

2023 Share Incentive Plan Released to Boost Team Morale

the company issued the 2023 restricted stock incentive plan (draft), which intends to grant no more than 1 million restricted shares to the incentive target, accounting for about 0.22 of the company's total share capital. The incentive object granted for the first time is 157 people, including senior management personnel, core management personnel and technical backbone of the company, and the award price is not less than 150 yuan/share. At the same time, set performance appraisal targets based on 2022:

1) in 2023, the growth rate of revenue will not be less than 15%, and the growth rate of institutional subscription and service revenue will not be less than 25%;

2) From 2023 to 2024, the growth rate of the cumulative value of income in the two years shall not be less than 147.25, and the growth rate of the cumulative value of institutional subscription and service income in the two years shall not be less than 181.25;

3) From 2023 to 2025, the cumulative value of revenue will grow at a rate of not less than 299.34 per cent in the three years, and the cumulative value of institutional subscription and service revenue will grow at a rate of not less than 376.56 per cent in the three years.

Earnings Forecast and Investment Rating: Based on the principle of prudence, the proposed equity incentive is not included in the earnings forecast. The company is China's Office leader, will benefit from AIGC empowerment and membership system optimization and upgrading. We expect the net profit of 2023-2025 to be 16.53/22.92/2.985 billion yuan, EPS to be 3.58/4.97/6.47 yuan/share, and the current share price corresponding to PE to be 124.99/90.15/69.24X, covering the company for the first time, giving a "buy" rating.

Risk Warning: Macroeconomic impact on downstream demand, credit promotion speed is not as fast as expected, AIGC application is not as fast as expected, single product risk, market competition intensifies, etc., equity incentive matters uncertainty.