1Q24 revenue basically in line with our expectations, the return of net profit exceeded our expectations The company announced 1Q24 results: revenue of 1.225 billion yuan, +16.5% YoY; return of net profit of 0.367 billion yuan, +37.3% YoY; deduction of non-return of net profit of 0.352 billion yuan, +40.6% YoY. 1Q24 The company's revenue performance was basically in line with our expectations. Due to the effective control of sales expenses (1Q24 sales expenses were 0.216 billion yuan, down 13.5 percent year-on-year), the company's profit performance exceeded our expectations.

also announced the 2024 restricted stock incentive plan (draft): no more than 1 million restricted shares (0.22 per cent of the total share capital on the date of the draft announcement) are to be granted to 158 incentive targets. The assessment target is revenue growth and institutional subscription business revenue, and the 2024 target value corresponds to 10%/15% year-on-year growth rate, respectively.

Development Trend

Individual Subscription: Expect 2Q24 to start WPS AI catalysis to gradually appear. 1Q24 revenue of 0.734 billion yuan (yoy -24.8%), solid growth in the absence of AI-driven, in line with our expectations. As of the end of 1Q24, the number of monthly live devices for the company's main products 0.602 billion (yoy -2.2%), of which PC-side 0.27 billion (yoy -7.1%), core users continued to grow, and mobile-side 0.329 billion (down 1.5 YoY).

1Q24 company's contract liabilities declined month-on-month. we judge that the main reason is that some of the newly signed government localization orders in 4Q23 were confirmed in 1Q24, while the contract liabilities of individual subscription business increased month-on-month. after restoration, we expect the year-on-year growth rate of C- side subscription flow to be about 28%, better than the performance of income side. We expect that WPS AI's pulling effect on C- end business will be reflected in 2Q24. We will raise our forecast for the number of paid users of C- end business in 2024. Combined with WPS AI's pulling effect on APRU, we expect the annual personal subscription business income to reach about 3.5 billion yuan (year-on-year + 33%).

institutional subscriptions: the business model continues to be optimized and is expected to maintain a high growth hub. 1Q24 institutional subscription business revenue of 0.242 billion yuan (yoy plus 13.6), the company accelerated the site authorization to upgrade to a pure subscription business model, resulting in a decline in the proportion of current order confirmation, single-quarter revenue performance is lower than we expected. For the full year, combined with the WPS AI Enterprise Edition pull, we expect institutional subscription revenue growth to remain at 25%-30% year-on-year. Institutional authorization: Government localization demand has picked up, and revenue is expected to stabilize in 2024.

1Q24 Institutional Authorized Business Revenue 0.193 billion yuan (+6.3% YoY), better than we expected. Since the end of 2023, the company has been harvesting government-side domestic incremental orders, we expect some orders to be confirmed in 1Q24. At present, the market for the company's institutional authorization business expectations are low, we believe that in 2024 the company's institutional authorization business revenue or achieve a flat or slightly increased year-on-year.

earnings forecast and valuation

considering that the company's personnel size has been basically stable, while in AI and other aspects of investment control, we expect 1Q24 cost control effect or will be reflected. Overlaying the increase in financial income, we raised the company's 2024/2025 earnings forecast by 5.8/5.1 to $16.30/2.019 billion. Maintain a win-win industry rating and industry rating and a $382 target price (based on 56x 2025e P/OCF), with 33.7 upside from the current price, which corresponds to 42.2x 2025e P/OCF.

Risk

R & D investment exceeds expectations; WPS AI commercial landing falls short of expectations; localization advances fall short of expectations.