Kingsoft Office(688111) 华创证券·2024-05-08 09:32Investment Rating - Strong Buy (Maintained) with a target price of 399 RMB [1] Core Views - The company, as a leading domestic office software provider, has shown steady revenue and profit growth, with a stable gross margin of around 85% and a net margin of approximately 30% [1] - The office software market has significant potential, driven by the global digitalization trend, increased demand for cloud services, and AI empowerment [1] - The company's WPS AI, launched in 2023, is expected to drive both C-end and B-end product growth, with ARPU projected to increase from 74.75 RMB in 2023 to 83.62 RMB in 2024, and further to 93.53 RMB in 2025 [1][6] - The company's subscription business is performing well, with AI strategy opening up new growth opportunities [1] Company Overview - Founded in 2011, the company has become a leader in the domestic office software market, offering WPS Office across PC, mobile, and cloud platforms [1] - Revenue growth has been strong, with 2018-2021 CAGR of 44.5%, though growth slowed to 17.27% in 2023 due to institutional licensing business fluctuations [1] - Personal and institutional subscription revenues have grown significantly, from 3.7/0.23 billion RMB in 2018 to 26.53/9.57 billion RMB in 2023, accounting for 58.24%/21.01% of total revenue [1] Market Potential - The collaborative office market in China is expected to reach 33.01 billion RMB in 2023, growing at 12.3% YoY [1] - AI+office is a major trend, with leading companies like Microsoft, DingTalk, and Kingsoft launching AI-powered office products [1] - The company's WPS AI, launched in April 2023, is positioned to compete with Microsoft's Copilot, offering comprehensive functionality and ease of use [1][6] Product and Strategy - The company has upgraded its membership system and suspended ad services in 2023, enhancing user experience [1] - WPS AI is expected to drive user growth, loyalty, and ARPU, with C-end ARPU projected to grow by 11.86% in 2024 and 11.85% in 2025 [1][6] - B-end products are also expected to see growth, with WPS 365 serving over 17,000 major enterprise clients by the end of 2023 [6] Financial Projections - Revenue is projected to grow from 5.643 billion RMB in 2024 to 9.976 billion RMB in 2026, with a CAGR of 31.1% [1] - Net profit is expected to increase from 1.626 billion RMB in 2024 to 2.673 billion RMB in 2026, with a CAGR of 27.6% [1] - The company's DCF valuation suggests a target market cap of 1840.49 billion RMB, with a target price of 399 RMB [1] AI and Future Growth - WPS AI, launched in 2023, is expected to significantly enhance both C-end and B-end product offerings, driving user growth and ARPU [1][6] - The company's AI strategy, combining large model partnerships with small model self-research, positions it well for future growth in the AI-powered office software market [1][6]