Kingsoft Office (.SS)_ WPS AI and Super membership discount to drive adoption; new AI function launched; Buy

Summary of Kingsoft Office (688111.SS) Conference Call Company Overview - Company: Kingsoft Office (KO) - Ticker: 688111.SS - Industry: Software and Technology Key Points and Arguments Subscription and Pricing Strategy - Kingsoft Office has introduced higher discounts for WPS AI and WPS Super Membership to attract new users and increase Average Revenue Per User (ARPU) - The WPS AI discount price is set at Rmb108 per year, compared to the previous price of Rmb248 per year, aiming to enhance user engagement and extend subscription periods to 2 years or more [1][3] - The company expects the paying ratio for the ToC (Transaction of Customers) to reach approximately 7% in 2025, with an anticipated ARPU of Rmb105 [1] New Product Features - A new AI shorthand function was launched in December, allowing users to convert audio or voice to text for WPS Document or Presentation, which is expected to enhance the efficiency of WPS AI [1][3] - The introduction of AI functions is projected to drive membership adoption and increase the ToC subscription ARPU from the current Rmb85 in 2024 to higher levels in 2025 [1][3] Financial Projections - Earnings for Kingsoft Office have been revised upwards by 2% for 2025E and 2026E, reflecting expectations for increased revenues from the ToC subscription business and a lower operating expense ratio [1][15] - Revenue projections for 2025E are set at Rmb7,612 million, with net income expected to reach Rmb2,543 million [1][16] Valuation and Price Target - The target price for Kingsoft Office has been increased by 12% to Rmb417, based on a revised target P/E multiple of 77x for 2025E [1][17] - The current valuation suggests that the company is undervalued compared to its peers, with a target P/E multiple positioned between the company's average P/E of 82x and the average -1 P/E of 59x [1][17] Risks and Challenges - Key risks include slower-than-expected transitions to the new membership system, lower adoption rates from ToB (Transaction of Businesses) customers, increased competitive intensity, and slower monetization of AI features [1][40] Financial Metrics - The company’s revenue growth is projected at 46% YoY for 2025, with gross profit margins expected to remain stable around 85% [1][29] - Operating margins are anticipated to improve from 24.4% in 2024E to 29.3% in 2025E [1][29] Additional Important Information - Kingsoft Office is focusing on cultivating long-term users through extended subscription plans and promotional pricing strategies [1][3] - The company is actively enhancing its product offerings with AI capabilities to stay competitive in the software market [1][3] This summary encapsulates the essential insights from the conference call regarding Kingsoft Office's strategic initiatives, financial outlook, and market positioning.