The payment business is expected to grow rapidly, and the in-store business strategy is adjusted

Considering the high channel commission incentives under one-time adjustments and fees in the payment business, the in-store business is pressured by GTV and commission rates due to increased competition from platform service providers, and the commission rate is low under the partner model. We lowered the company's net profit forecast for 2023-2025 to RMB 0.11/41/550 million (previous value: 4.3/72/RMB 92 billion), corresponding to EPS0.02/0.93/1.27 yuan, corresponding to the year-on-year growth rate of -89%/3671%/37%. The current stock price of 12.28HKD corresponds to 2023-2025 Annual PE 459.6/12.2/8.9 times. In the future, industry concentration is expected to increase as compliance in the payment industry is promoted, and there is still room for improvement in the market share and rate of the payment business; the in-store business is expected to achieve a break-even balance as service providers clear and the company's multi-platform strategy progresses, maintaining a “buy” rating.

The payment business is expected to grow rapidly in 2023, and the increase in shares and rates in 2024 is expected to continue to drive growth. The GPV growth rate of the payment business is expected to continue to be faster than the industry, and rates will be pressured in the short term due to settlement. On the GPV side, benefiting from the recovery of offline consumption and the advantages of channel providers, we expect the company's GPV to reach 2.7-2.9 trillion yuan in 2023, corresponding to a year-on-year growth rate of 21%-30%, which is higher than that of the industry. According to iResearch's estimates, the year-on-year growth rate of integrated third-party payment transactions will be 14.5% in 2023. In terms of rates, considering the one-time adjustment of the company's payment and transaction fees to accounts to be processed by clearing agencies and the increase in channel commissions due to the expansion of small and medium-sized merchants, the rate declined in the short term or year over year. On March 8, 2024, E-Swipe Technology, a subsidiary of E-Card, was punished by the central bank due to merchant management violations, etc. In the future, market concentration is expected to increase as the payment industry develops in compliance, and there is still room for the company's payment business to increase its share and rates through channel advantages.

In-store business performance may be under pressure in 2023. As the industry clears up and multi-platform expansion drives it to return to the store business, against the backdrop of increased competition among service providers on the Douyin platform, short-term GMV and commission rates are under pressure, and the company focuses on break-even before scale growth. Considering the intensification of service provider ecological competition under the platform strategy adjustment, the partner model reduces operating costs but the commission rate is lower, and 2023H2's GMV and commission rate may decline month-on-month.

The company's strategy focuses on break-even, and continues to promote cost reduction and efficiency of the direct management model and the expansion of the partner model. It is expected to return to growth in the medium to long term with the clearance of platform service providers and multi-platform expansion.

Risk warning: Competition among platform service providers has intensified, competition among third-party payment platforms has intensified, traffic platform policies have changed, and cost reduction and efficiency have fallen short of expectations.