Adjusted EBITDA results for 2023 were slightly above our expectations

The company announced its 2023 results: revenue +16% to 3.95 billion yuan, in line with our expectations. The adjusted EBITDA was +161% to 550 million yuan, higher than our expectations of 4%, mainly due to the company's cost reduction and efficiency increase.

Development trends

Receipt transaction flow has grown rapidly, and the overall rate recovery has further increased revenue growth. The company maintained a relatively rapid growth rate of +29% to 2.9 trillion yuan in 2023. Among them, the proportion of mobile transactions further increased, +1ppt to 71% year-on-year. In the same period, the overall rate of the company's billing business also increased, from +1 bps to 13.3 bps (plus non-recurring revenue adjustments), and after deducting the non-recurring revenue adjustment of 344 million yuan after deducting the company's payment of related transaction fees to the clearing agency, the company's billing business revenue in 2023 was +27% year-on-year to 3.5 billion yuan. In addition, the gross margin of the company's receipt business in 2023 was -10ppt to 9.7% year-on-year, mainly due to an increase in channel profit sharing ratio and the impact of non-recurring revenue adjustments. After excluding the impact of non-recurring revenue, the company's gross margin for the same period was -1ppt to 18% year over year, and corresponding gross profit +28% to 680 million yuan.

In-store e-commerce GMV has been growing steadily, and net losses have narrowed due to cost reduction and efficiency. The company's e-commerce GMV in 2023 was +30% to 4.3 billion yuan, and revenue was -71% to 100 million yuan, mainly because the company coped with competition in the industry by expanding a partnership model with a relatively lower monetization rate and making concessions to merchants. In addition, as the company promoted cost reduction and efficiency in the in-store business, the gross margin of the in-store e-commerce business was +13ppt to 80% year over year, and net loss decreased 79% year over year to 44 million yuan during the same period.

Merchant Solution revenue returned to a growth trajectory, and the company's overall profitability improved. The company's merchant solution revenue in 2023 was +17% to 360 million yuan, or mainly due to the further improvement of the company's product service ecosystem and increased merchant willingness to pay. Over the same period, the gross margin of merchant solutions also increased, +3ppt to 87% year-on-year. Furthermore, in terms of operating expenses, along with the company streamlining the in-store e-commerce cost structure, sales expenses declined in 2023, -68% over the same period last year to 130 million yuan. Overall, with the receipt business maintaining rapid growth and cost-side cost control, the company's overall profitability increased in 2023, and adjusted EBITDA was +161% year-on-year to 550 million yuan. Looking ahead, we recommend focusing on marginal changes in billing rates and the point at which in-store e-commerce businesses turn losses into profits.

Profit forecasting and valuation

We maintain our 2024e/25e adjusted EBITDA forecast unchanged at 660 million/750 million yuan. Current stock price trading with 5.1x/3.6x 2024e/2025e EV/EBITDA. We keep our target price of HK$15.54 unchanged, corresponding to 6.3x/4.5x 2024e/25e EV/EBITDA, with 24% upside compared to the current stock price. Maintain outperforming industry ratings.

risks

Competition in the industry is intensifying, macroeconomic uncertainty, and the risk of stricter regulations.