Incident: Xindalu released its 2023 semi-annual performance report on August 25. In the first half of 2023, the company achieved operating income of 3,838 billion yuan, an increase of 5.03% over the previous year; achieved net profit of 565 million yuan, an increase of 139.09% over the previous year; and achieved non-net profit of 596 million yuan, an increase of 94.54% over the previous year.

Overseas business deployment is accelerating, and Q2 profit side is growing rapidly. In the second quarter of 2023, the company achieved operating income of 1,939 million yuan, an increase of 4.03% over the previous year; realized net profit of 265 million yuan, an increase of 74.19% over the previous year; achieved non-net profit of 347 million yuan, an increase of 175.54% over the previous year, close to the upper limit of the performance forecast. The profit side is growing rapidly, mainly due to the company actively grasping the development opportunities of the recovery of the domestic offline consumer economy and the continuous penetration of the overseas contactless economy, continuously improving its sustainable business philosophy and global perspective in dealing with complex environments, accelerating the localization deployment of overseas business, and continuously optimizing operating and management costs.

Expense control is good, and cash flow is abundant. 1) Expense side: In the first half of 2023 in Xindalu, the year-on-year growth rate of sales/management/R&D expenses was 7.31%/-0.84%/-1.88%, respectively, and cost side control was stable; 2) Cash flow: The company's net cash flow from operating activities in the first half of the year reached 1,283 billion yuan, an increase of 217.87% over the previous year, mainly due to the continuous growth in the scale of digital payment terminal sales repayments, merchant operations and value-added services, and the increase in cash received for services provided by the sales products. Also, the beginning of the reporting period was a statutory holiday. .

The recovery in consumption has led to growth in the payment business, and the overseas business has become a new growth point. 1) Offline consumption continues to recover, payment industry standardization and optimization competition pattern: Since the first half of the year, offline consumption has continued to recover. On July 28, 2023, the State Council forwarded the notice of the National Development and Reform Commission on measures to resume and expand consumption to promote further expansion of offline consumption. At the same time, regulators such as the China Payment Clearing Association issued documents to regulate the development of the payment industry, so that the competitive landscape of the industry was further optimized. The company seized opportunities and achieved a payment service transaction scale of 1.30 trillion yuan in the first half of the year, an increase of 17.73% over the previous year. The turnover share of more than 10,000 merchants continues to grow, up nearly 10 percentage points from the end of last year; 2) The digital payment market in overseas countries has expanded, and the payment terminal business continues to profit: Benefiting from post-epidemic consumption recovery in overseas markets and trend changes in consumption habits, the digital payment terminal industry continues to develop globally. In particular, the penetration rate of non-cash payments and mobile payments in developing countries has increased rapidly. The market scale of digital payment terminals has further expanded, and the company's overseas digital payment terminal business has developed rapidly. It has achieved overseas payment terminal sales volume exceeding 2.1 million units, accounting for more than 77% of revenue.

Investment suggestions: The company's net profit for 23-25 is expected to be 1,069, 1,327, and 1,569 billion yuan respectively, with a year-on-year growth rate of 380%/24%/18%, respectively. The current market value corresponding to 23/24/25 PE is 17/14/11 times. Considering the continued recovery of offline consumption in the second half of 2023 and the further expansion of the overseas payment market, the company's main business is expected to fully benefit and maintain its “recommended” rating.

Risk warning: increased market competition; regulatory risks; inability to continue enjoying tax benefits; technical risks.