occurrences

On March 21, 2024, the company announced its 2023 results, achieving annual revenue of 3.95 billion yuan, +15.6% year on year, adjusted EBITDA of 556 million yuan, +160.6% year on year; net profit to mother of 12 million yuan, -92.4% year on year.

Management analysis

The payments business is growing well, but gross margins have declined slightly. Revenue of 3.48 billion yuan was achieved in '23, +26.5% year-on-year. If non-recurring revenue reduced throughout the year (amount processing associated with transaction fee rate adjustments) is added, it is +39.0% year-on-year. Split volume price: 1) GPV of 2.88 trillion yuan for the whole year, +29.2% year-on-year, mainly due to the recovery of offline operations and consumption after the epidemic, and significant progress in joint billing in cooperation with commercial banks. In addition, both digital currency and overseas payment services have progressed. The digital currency payment service GPV was 22 million yuan, and local QR code and bank card billing services were carried out in Singapore and other places; 2) The comprehensive processing fee rate for 23 years was about 13.3 bps, +1.3 bps compared to the previous year, and fees are progressing steadily. The gross margin of this business was 9.7%, -9.6pct year over year, mainly due to increased commission rates from distribution channels and reduction in non-recurring revenue.

Merchant solutions are growing steadily and maintaining high levels of profitability. Revenue of 360 million yuan in '23, or +17.2% over the same period, was mainly due to improved product commercialization capabilities and increased willingness of offline merchants to pay. In '23, the company launched the metaverse game Yverse to help merchants build metaverse spaces and carry out deep private marketing. After the game was launched, the weekly activity rate of merchants in private communities increased from 12% to 37%, and the user retention rate increased from 30% to 70%. The gross profit margin of this business in '23 was 87.4%, +3.3 pct compared to the previous year, mainly due to low costs and partial rigidity.

The growth rate of in-store e-commerce business has slowed, but losses have narrowed significantly. Revenue of 100 million yuan was achieved in '23, or -71.0% year-on-year, mainly due to a slowdown in GMV growth (4.32 billion yuan for the whole year, +30.3% year over year), partner model expansion (net law to confirm revenue), and strategic concessions to merchants to cope with industry competition, which led to a sharp reduction in take-rate, from 10.7% in '22 to 2.39% in '23. The gross margin of the business in '23 was about 80.3%, +13.0pct. The main reason was that from a financial perspective, the partner model cost was lower and operational efficiency improved; net loss narrowed 79.4% year over year to 44 million yuan.

Profit Forecasts, Valuations, and Ratings

Profit pressure in '23 was mainly due to a reduction in non-recurring revenue and a slowdown in the growth rate of in-store e-commerce business, and overall rates were stable. Looking ahead, we expect the payment business and merchant solution business to develop steadily in 24 years, and the impact of non-recurring revenue reduction may end in Q2. If competition among Douyin third-party service providers weakens and in-store businesses such as Xiaohongshu and Kuaishou advance rapidly, the growth pressure is expected to ease. We expect net profit to be 2.4, 3.9, and 530 million yuan for 24-25, corresponding PE of 21, 13, and 9X, maintaining a “buy” rating.

Risk warning

The risk that payment business falls short of expectations; in-store e-commerce business competition increases risk; changes in the fair value of financial assets or financial liabilities that include profit and loss at fair value.