Report Summary

Event: In 2024, the company achieved operating income of 5.121 billion yuan (+12.40%), net profit attributable to the parent company of 1.645 billion yuan (+24.84%), and non-net profit of 1.556 billion yuan (+23.30%).

The scale effect of C-end customers has emerged, the growth momentum of WPS 365 business is strong, and the initial commercial realization of AI strategy will be realized in 2024, and the company's overall business will maintain a steady growth trend. In terms of revenue structure, WPS's personal business was 3.283 billion yuan (+18.00%), accounting for 64.12% of the revenue, and the scale effect of ToC customers appeared; Among them, the number of monthly active devices of the office suite WPS Office worldwide exceeded 632 million (+6.22%), reaching a new record high. WPS 365 business was RMB437 million (+149.33%), with strong growth momentum; Achieve full coverage of functions and modules such as "Office software, layout files, cloud documents, collaboration, IM, mailbox, and conference", and actively expand the application of AI Enterprise Edition to meet the needs of B-end customers in an all-round way. WPS Software/Main - Other Business declined, mainly due to the company's strategic adjustment, which drove customers to switch from using WPS software to choosing WPS365 office services. In terms of the implementation of the "All in AI" strategy, the company's important strategic product WPS AI continued to be iteratively upgraded, and the number of monthly active users of the intelligent office assistant WPS AI reached 19.68 million.

In the past, the AI functions used by users mainly focused on text generation, PPT design, and data analysis. Now, with the improvement of AI and large model capabilities, the company is focusing on improving the ability of tabular data processing to meet the needs of users for data analysis and BI technology. At the same time, through operational practice, it is verified that AI products play an important role in driving the growth of the number of users and business monetization. In addition, the company also made it clear that it is "very confident that it will achieve rapid growth in WPS365 business in the next five years" and "in the next five years, the company will further use AI as a core technology and let AI transform every existing product". We believe that the scale effect brought by the accumulation of the company's C-end customers is sustainable, the cloud service market with rich B-end business has a lot of room for expansion, and the AI-driven revenue growth is still in the early stage.

Continue high-quality growth performance and strengthen forward-looking R&D investment

During the reporting period, the company achieved revenue growth (+12.40%) and net profit attributable to the parent company (+24.84%), and its profitability was 12.44pcts higher than that of revenue growth in the same period. In terms of expenses, the growth rate of selling/administrative/R&D expenses was (+2.47%/-9.36%/+15.16%), respectively. The sales expenses increased slightly year-on-year, and the management expenses decreased significantly, which proved that the company's products had strong market competitiveness, good cost control, and improved operating efficiency. From 2022 to 2024, the R&D expenses will be 1.331 billion yuan/1.472 billion yuan/1.696 billion yuan, respectively, and the proportion of R&D expenses in operating income will reach 34.27%/32.32%/33.11% respectively. Focusing on the core strategic direction of "multi-screen, cloud, content, collaboration, and A1", we continued to increase R&D investment in the field of collaboration and AI, which effectively enhanced the company's market competitiveness and industry influence in the field of smart office. The company deeply couples the large model with the whole line of products, and uses the "AI gateway" to manage the capabilities of different large models in a unified manner, which successfully solves the compatibility problem of each large model and realizes the accurate adaptation of the large model behind different functions. The self-developed WPS 365 focuses on key technologies such as data cloud storage, intelligent processing, and secure sharing, providing users with comprehensive multi-platform office solutions. The company has also cooperated with Huawei to launch WPS HarmonyOS Edition, which unifies the architecture of PC and mobile terminals, creating a smooth experience such as multi-platform account integration, cross-terminal calling, and cross-screen collaboration, laying a solid foundation for the deep integration of cross-device office in the future. On the whole, the company's operation continued to perform with high-quality growth, and the ecological richness of its WPS products was further improved driven by steady R&D investment.

Investment Advice

We believe that the scale effect brought by the accumulation of the company's C-end customers is sustainable, the cloud service market with rich B-end business has more room for expansion, and the AI-driven revenue growth is still in the early stage. In addition, the overall operation maintained high-quality growth performance, and the ecological richness of WPS products driven by steady R&D investment was further improved. It is estimated that the company's operating income from 2025 to 2027 will be 6.114 billion yuan, 7.464 billion yuan and 9.184 billion yuan respectively; The net profit attributable to the parent company was 1.966 billion yuan, 2.339 billion yuan and 2.833 billion yuan respectively, corresponding to the current PE of 73.65X/61.89X/51.11X, respectively, maintaining a "buy" rating.

Risk warning: downstream demand is less than expected; Technology iteration is accelerating; Market competition has intensified.