\u3000\u3 Guocheng Mining Co.Ltd(000688) 111 Beijing Kingsoft Office Software Inc(688111) )
Event: on March 23, 2022, the company released the annual performance report for 2021. According to the company’s announcement, the company achieved a total revenue of 3.28 billion yuan in 2021, a year-on-year increase of 45.07%; The net profit attributable to the parent company was 1.041 billion yuan, a year-on-year increase of 18.57%; The net profit deducted from non parent company was 840 million yuan, with a year-on-year increase of 37.32%; On March 24, 2022, the company issued an equity incentive plan to grant 1 million restricted shares to the incentive object. The grant price of restricted shares (including reserved grant) is no less than 45.86 yuan / share.
Comments:
The performance achieved high growth and the contract liabilities performed well
According to the company’s 2021 annual report, the compound growth rate of the company’s operating revenue from 2016 to 2021 reached 44.47%, and the compound growth rate of net profit attributable to the parent company was 48.55%; In 2021, the company’s contractual liabilities amounted to 1.421 billion yuan, with a year-on-year increase of 70.63%. The company has great potential for performance growth.
The company actively deployed government enterprise market, education market and other fields, expanded the field of ecological cooperation, improved the ecological partnership, further improved its public cloud empowerment ability, deeply expanded to e-commerce, retail, engineering construction, educational institutions and other industries, and continuously improved the viscosity of enterprise users and product reputation.
At the same time, China’s information and innovation industry has entered a period of development. With the support of policies, the market space has expanded significantly, the demand of government and enterprise users has increased significantly, and the orders of the company’s streaming office software products are rich, which has accelerated the penetration of the company’s information and innovation products and driven the authorized business of Chinese institutions to continue to maintain explosive growth. With the gradual emergence of enterprise level user data management needs and industrial digital needs, and the positive promotion of the company’s “multi screen, cloud, content, AI and collaboration” strategy, the company is expected to further open up growth space in the future and maintain rapid growth in performance.
Steady cash flow and sustained growth rate of operating expenses
From 2017 to 2021, the company’s operating cash flow continued to grow. In 2021, the company achieved operating cash flow of 1.864 billion yuan, a year-on-year increase of 23.12%, and the overall performance was stable. In terms of expense rate, in 2021, the company’s sales expense rate was 21.19%, a year-on-year decrease of 0.17 percentage points, the management expense rate was 9.94%, a year-on-year increase of 0.52 percentage points, and the sales management expense rate was relatively stable. At the same time, the company continued to actively invest in R & D. in 2021, the R & D cost was 1.082 billion yuan, and the R & D cost rate increased slightly by 1.54 percentage points year-on-year.
The issuance of equity incentive will help to fully mobilize the enthusiasm of employees
The company plans to grant 1 million restricted shares to the incentive objects in this incentive plan, including 800000 shares for the first time, accounting for about 0.17% of the total share capital of the company at the time of announcement of the draft incentive plan; 200000 shares are reserved, accounting for about 0.04% of the total share capital of the company when the draft incentive plan is announced. The grant price of restricted shares (including reserved grant) is no less than 45.86 yuan / share. The plan involves a total of 127 people, including 121 incentive objects in the first category and 6 incentive objects in the second category, mainly including core management personnel and technical backbone personnel. On the one hand, this equity incentive helps to deeply bind the core backbone of the company, on the other hand, it helps to enhance the sense of belonging of the company’s employees and improve the overall vitality of the company.
The assessment standard is clear, which further improves the certainty of the company’s future performance
The assessment year of the company’s incentive plan for granting restricted shares for the first time is three fiscal years from 2022 to 2024, one assessment in each fiscal year, and two assessment indicators of target value and trigger value are set. According to the assessment requirements of the company, if the performance of the company in 2022 / 20222023 / 20222024 is lower than RMB 3.608 billion / RMB 7.577 billion / RMB 11.942 billion respectively, the incentive object cannot obtain the current equity incentive. The incentive object can obtain the current full equity incentive only if the performance of the company in 2022 / 20222023 / 20222024 is higher than RMB 3.772 billion / RMB 8.110 billion / RMB 13.142 billion.
The company’s user base continues to expand, and users’ willingness to pay continues to improve
As of December 31, 2021, the number of monthly active equipment of the company’s main products was 544 million, an increase of 14.05% over the same period of last year; The cumulative number of annual paid individual users reached 25.37 million, a year-on-year increase of 29.31%. In terms of monthly active devices by product, wpsofficepc version has 219 million monthly active devices, an increase of 15.87% over the same period of last year; The monthly number of active mobile devices was 321 million, an increase of 13.83% over the same period last year. The continuous expansion of the company’s user group and the increasing willingness of users to pay will help the company build a wider moat and thicken the company’s profitability.
Domestic substitution logic creates a favorable development window for the company, and government and enterprise procurement accelerates the penetration process of WPS
In the context of domestic substitution, the government supports the development of local software enterprises through policies, funds and other means. At the same time, with the continuous improvement of the performance of the company’s products, the recognition of Chinese users for the company’s products is also increasing, and the company continues to benefit under the promotion of multiple benefits. On the other hand, government and enterprise procurement has also accelerated the penetration process of WPS in the Chinese market, and the market share has been rapidly improved, which will help the company accelerate its development and provide a strong guarantee for the company’s future performance.
In addition, the company took the lead in vigorously distributing mobile end products, taking the mobile end as the traffic entrance, so as to realize the coordinated growth of WPS mobile end and WPS desktop end product users; Relying on Jinshan cloud to actively promote the cloud strategy, it has more data security than overseas enterprises, and is expected to open the company’s second growth curve.
Profit forecast and investment rating
Under the background of domestic substitution, domestic software has ushered in a development window period. At the same time, with the improvement of national copyright awareness and payment ability, China National Software And Service Company Limited(600536) enterprises’ profitability has been further improved. The company actively promotes technological innovation and product innovation, pays close attention to the general trend of office software mobility and cloud, and is expected to maintain rapid growth in the future. It is estimated that the net profit attributable to the parent company from 2022 to 2024 will be 1.339 billion yuan, 1.727 billion yuan and 2.231 billion yuan respectively, corresponding to 66.16 times, 51.28 times and 39.70 times of PE, maintaining the “overweight” rating.
Risk factors
Downstream industry fluctuation risk, company development is less than expected, covid-19 epidemic spread
