Event: Kingsoft Office released its 2024 annual report, and the company achieved revenue of 5.121 billion yuan in 2024, a year-on-year increase of 12.4%; the net profit attributable to the parent company was 1.645 billion yuan, a year-on-year increase of 24.8%; the net profit was 1.556 billion yuan, a year-on-year increase of 23.3%; Net operating cash flow was RMB2.196 billion, representing a year-on-year increase of 6.71%. The company's gross profit margin was 85.14%, basically unchanged year-on-year. In 2024Q4 alone, the company achieved revenue of 1.494 billion yuan, a year-on-year increase of 16%; the net profit attributable to the parent company was 605 million yuan, a year-on-year increase of 43%; The net profit was 566 million yuan, a year-on-year increase of 41%.

The commercialization of C-end AI applications continued to advance, driving the steady growth of the individual subscription business. In 2024, the company's WPS AI products will be iteratively upgraded, and WPS AI office assistants for individual users will be launched, including AI writing assistants, AI reading assistants, AI data assistants, and AI design assistants. In 2024, the company's WPS personal business will achieve revenue of 3.283 billion yuan, a year-on-year increase of 18%. Among them, the domestic revenue was 3.1 billion yuan, the cumulative annual paying individual users were 41.7 million, a year-on-year increase of 17.49%, and the number of WPS AI monthly active users reached 19.68 million. WPS's overseas business expansion has been smooth, with overseas personal revenue of 183 million yuan in 24 years and a cumulative annual paying user of 1.74 million. As of the end of 2024, WPS Office has 632 million monthly active devices worldwide, up 6.22% year-over-year.

Among them, the number of monthly active devices of WPS Office PC version was 291 million, a year-on-year increase of 9.81%; The number of monthly active devices of WPS Office mobile was 341 million, a year-on-year increase of 3.33%.

The B-side continues to integrate AI functions, ushering in the era of AI collaborative office. In 2024, WPS 365 covers WPS Office, WPS collaboration, and WPS AI Enterprise Edition, opening up the three major functions of document, collaboration, and AI to achieve one-stop AI office, and launching WPS AI Government Edition and WPS 365 Education Edition. WPS 365 has landed in China Resources Group, COFCO, China Railway, Sinopharm Group and other leading customers in various industries, and the company has accelerated its coverage of private enterprises and local state-owned enterprises. In terms of government, enterprise and information innovation, the company provides products represented by WPS client and document platform, and actively promotes the procurement and upgrading of customers from a single software product to the WPS 365 platform. In 2024, the company's WPS365 and WPS software services will achieve revenue of 437 million yuan and 1.268 billion yuan respectively, an increase of 149.3% and -8.6% year-on-year respectively, and the company expects that more customers will gradually shift from using WPS software to choosing WPS 365 office services in the future.

The cost is well controlled, and the product system is constantly improved. In terms of expenses, in 2024, the company's sales expense rate/management expense rate/R&D expense rate will be 19.4%/7.9%/33.1% respectively, with a year-on-year change of -1.87pct/-1.89pct/0.79pct; The company's gross profit margin was 85.1%, basically unchanged year-on-year. The company insists on focusing on the research and development of related products, and the research and development expenses remain high. In 2024, the company will have a total of 3,473 R&D personnel, accounting for about 67% of the total employees. Under the high R&D efforts, 1) the company deeply integrates large models with the whole line of products, and uses the "AI gateway" to manage different large model capabilities in a unified manner; 2) The company unifies the multi-screen experience to achieve the consistency of PC large screen, tablet, mobile small screen and Web kernel; 3) Upgrade and iterate the private cloud version, reduce the deployment of collaborative office platforms, support AI product adaptation, and be compatible with localized hardware.

Profit Forecast and Investment Rating: The commercialization of the company's C-end AI applications continued to land, and the number of monthly active devices and paying users increased year-on-year; The B-side continues to integrate AI functions, and WPS 365 business performance is outstanding. We expect the EPS in 2024-2026 to be 4.62/5.95/7.23 yuan, and the corresponding P/E will be 67.03/52.01/42.77 times, respectively, maintaining a "buy" rating.

Risk factors: market acceptance of AI products is lower than expected; Downstream customers' ability to pay is less than expected;