The 2H23 adjusted EBITDA is predicted to be +237% YoY to 250 million yuan

We expect ShiftCard 2H23's revenue to be +6% YoY to 1.9 billion yuan, adjusted EBITDA +237% YoY to 250 million yuan, full year 2023 revenue +15% YoY to 3.9 billion yuan, and adjusted EBITDA +276% YoY to 540 million yuan.

Key points of interest

Bill collection rates are expected to remain stable, and revenue from the billing business is expected to continue to grow steadily. We expect 2H23 receipt turnover or +23% YoY/+1% month-on-month to 1.4 trillion yuan, mainly due to the company's increasingly improved offline promotion channel system and possible further increase in market share. At the same time, considering that the offline billing industry is still facing greater regulatory compliance pressure, we expect that the company's 2H23 billing rate may be under pressure. Taken together, we expect 2H23 revenue to grow at a year-on-year rate of 15%, corresponding to +28% year-on-year revenue in 2023 to 3.5 billion yuan.

The GMV growth rate of the in-store e-commerce business is expected to be stable throughout the year, and 2H23 losses are expected to narrow due to scale effects. Considering the company's development partner model reduces costs and increases efficiency, and the in-store business competition is fierce, we expect the company's e-commerce GMV to reach +21% to 4 billion yuan in 2023, corresponding to 2H23GMV to 1.6 billion yuan. Furthermore, we expect the share of the partner model to further increase, which may drive the overall take rate to a marginal decline. However, considering that the company does not have to bear more operating expenses in the partner model and that as the company continues to reduce costs and increase efficiency, we expect the 2H23 net loss of the e-commerce business to the store will narrow compared to the same period last month.

It is expected that merchant solution revenue will resume growth. It is recommended to focus on the progress of the company's merchant services overseas.

We expect the revenue scale of the 2H23 merchant solution to pick up year-on-year, mainly due to the basic completion of the company's merchant solution development focus adjustments and the company's continued cross-selling of related products and services. At the same time, we believe that as the company's merchant solutions become more mature, it may be expected to expand overseas markets and enable overseas local merchants to accept orders and digitally operate, thereby opening up room for growth.

Profit forecasting and valuation

The company currently trades at 6.7x/4.5x 2023e/24e EV/EBITDA (adjusted). Considering the stricter regulation of offline receipt and the share or increase of the company's in-store e-commerce business partner model, we lowered the adjusted EBITDA forecast of 6% and 27% to 540 million yuan and 660 million yuan respectively for 2023 and 2024, and introduced an adjusted EBITDA forecast of 750 million yuan for 2025; since the company did not disclose adjusted net profit from 1H22 and only disclosed the adjusted EBITDA, we switched to EV/EBITDA valuation.

Considering that market sentiment is under pressure, we lowered our target price by 25% to HK$15.54, corresponding to 7.5x/6.1x 2023e/24e EV/EBITDA (after adjustment) to maintain the outperforming industry rating. There is room for 27% increase compared to the current stock price.

risks

The regulatory environment is uncertain; market competition exceeds expectations; new business development falls short of expectations.