Incident Overview
On October 27, Xindalu released its three-quarter report for 2023. In the first three quarters of 2023, the company achieved operating income of 5.883 billion yuan, an increase of 6.43% over the previous year; realized net profit of 818 million yuan, an increase of 119.83% over the previous year, and net profit after deducting non-return mother's net profit of 881 million yuan, an increase of 87.84% over the previous year.
Q3 High performance, impressive cash flow
On the revenue side, in the first three quarters of 2023, the company achieved revenue of 5.883 billion yuan, an increase of 6.43% over the previous year; in Q3 alone, the company achieved revenue of 2,045 billion yuan, an increase of 9.17% over the previous year. We believe that the company's smart payment terminals and payment processing business have all achieved good growth. On the cost side, the company's gross margin for the first three quarters of 2023 was 35.52%, compared to +8.81 pcts in the same period last year. We believe that mainly due to 1) the optimization of the company's payment terminal business revenue structure, overseas business revenue with high gross margin accounted for 74% of cluster revenue; 2) the company's flow billing business rate recovered, and profitability continued to increase. On the profit side, the company achieved a high level of growth in net profit. Net profit was 818 million yuan in the first three quarters, an increase of 119.83% over the previous year; in Q3 alone, the company achieved net profit of 254 million yuan, an increase of 86.39% over the previous year. It is worth mentioning that the company's net cash flow from operating activities in the first three quarters reached 1,781 billion dollars, an increase of 195.02% over the previous year. Mainly, the scale of merchant operations, value-added services, and digital payment terminals continued to grow during the reporting period. Good cash flow laid a solid foundation for the company's sustainable development.
The optimization of both supply and demand sides of the fee rate continues to be implemented, and the international strategy has entered the payroll processing business during the harvest period. 1) Demand side: by the end of the third quarter, the company achieved a cumulative payment service transaction scale exceeding 1.93 trillion yuan, an increase of 13.23% over the previous year; 2) supply side: Currently, there are 25 payment institutions with national bank card receipt licenses, and payment licenses continue to shrink.
In terms of smart payment terminals, we believe that there is still great potential for future development in overseas markets: 1) There is still room for improvement in the penetration rate of Latin America, Africa and other places: According to the FIS “2022 Global Payments Report”, the proportion of offline cash payments used in the Middle East Africa region and Latin America reached 44%/36% respectively in 2021. There is still a lot of room for non-cash payment penetration, and the market size will expand further.
2) New requirements for intelligent updates and upgrades: With the rise of mobile payments and third-party payments, the degree of intelligence of POS machines has increased, bringing demand for upgrades. The company has succeeded in Latin America, the Middle East and Africa, where card penetration rates are low. According to Nielsen data, in 2022, the company became the number one manufacturer in global shipping volume, and will continue to benefit from the rapid development of overseas markets in the future.
The acquisition business introduces a new management team to boost merchant operations and expand partner coverage. According to the company's announcement on September 28, the company plans to exchange shares to acquire 80% of Shanghai Shanhao Intelligence's shares through 50% of the shares held by Guotong Century Network, a wholly-owned subsidiary, to achieve control acquisition of Shanhao Intelligence, and introduce Shanhao Intelligent's management team. Shanhao's intelligent management team is deeply involved in the field of merchant operations and has strong SaaS integrated service capabilities, which will greatly enhance the company's service capabilities for the digital transformation of micro, small and medium-sized merchants, and better promote the development of merchant operations and value-added service business. Shanhao Intelligence focuses on solving the pain points of merchants and chain enterprises such as data silos, scenario payments, inventory management, member marketing, supply chain, and inclusive finance, creating comprehensive solutions covering various industries such as retail, catering, healthcare, and campus. Currently, the number of Shanhao intelligent service merchants exceeds 1 million, and its main partners include large state-owned enterprises, banks, and leading third-party payment institutions. We believe that this equity acquisition will enhance the overall digital level of the company's payment business, further deepen the company's understanding of downstream application scenarios, and broaden the coverage of the company's partners to help enhance the overall competitiveness of the company's billing business.
Investment advice
The company is the world's leading provider of smart payment solutions, with a complete industrial chain layout. In the short term, the gradual recovery of domestic consumption+output of production capacity has boosted the company's billing business, bringing flexibility in rates. In the medium to long term, along with the increase in the penetration rate of smart POS machines in overseas regions, it will bring continued growth to the company's electronic payment terminal business. Furthermore, the company's AI field collaborates with Zidong Taichu's multi-modal large-scale model of the Chinese Academy of Sciences. The application scenarios are broad and promising. We expect the company's operating income for 2023-2025 to be 87.24/106.11/12.867 billion respectively, and net profit of 1,076/14.83/2,026 million respectively, maintaining the buy-A investment rating. The six-month target price is 26.00 yuan, which is equivalent to a dynamic price-earnings ratio of 25 times in 2023.
Risk warning: macroeconomic risks, overseas market risks, industry policy risks, increased market competition, and the development of digital yuan falls short of expectations.