Core views

The company is about to release its 2023 financial report, and we have made a forward-looking forecast for the full year's results. In light of changes in non-recurring revenue in the payments industry and increased competition in the in-store business, we adjusted our revenue and net profit forecasts accordingly. Overall, we expect GPV in the payment industry to continue to grow in 2023, with a year-on-year increase in the number of active merchants, but the rate has changed. At the same time, the company's in-store e-commerce business has also experienced fierce competition and transformation. The GMV growth rate has maintained a steady increase, but the take rate is under pressure. The next step is to reverse losses in the company's in-store business.

Brief review

The payment business GPV is expected to continue growing in 2023. In 2023, the payment business GPV is expected to increase by 28.5% year on year to 2.87 trillion yuan, and the number of active service merchants will increase 13.6% year over year to 9.2 million, mainly benefiting from the recovery of offline consumption and expansion of payment distribution channels. Despite short-term pressure on payment business rates and a slight year-over-year decline, app-based and traditional payment rates for 2023 are expected to be 13.0 and 9.0 basis points, respectively, after excluding the impact of non-recurring revenue adjustments. As the central bank fully implements Document No. 259, it is expected that it will further regulate the development of the overall billing business, accelerate industry clearance, and benefit leading licensed institutions.

Competition in the in-store business is intensifying, and GMV needs to be further improved. We expect e-commerce service revenue to drop 71.8% year on year to 100 million yuan in 2023, while GMV will increase 21.2% year over year, reaching 4 billion yuan, with a take rate of about 2.5%. On the one hand, Douyin's local lifestyle service provider competition intensified, and the overall take rate was lowered. On the other hand, the partner model actively launched by the company also diluted the rate. Considering the continued progress of cost reduction and efficiency efforts, the arrival store is expected to gradually reduce losses and turn losses into profits.

Profit forecast and investment advice: In 2023, due to adjustments in non-recurring revenue in the payments industry and the impact of increased competition in the in-store business, the company's revenue and profit forecasts were adjusted to:

Operating revenue of 2023-2025 was 3,931 billion yuan, 5.449 billion yuan, and 6.365 billion yuan, with year-on-year growth rates of +15.0%, +38.6%, and +16.8% respectively; net profit from 2023 to 2025 is expected to be 11 million yuan, 206 million yuan, and 293 million yuan. As of 2024/3/11, corresponding to 2024/3/11, PE is about 23.7x and 16.6x, corresponding to 2024-2025, maintaining a “buy” rating.

Risk warning: The payment industry faces the risk of increased competition, industry regulatory policy adjustments may cause uncertainty, and the in-store e-commerce industry also faces the risk of increased competition and business development falling short of expectations.