Core views:

The company disclosed its 23-year results announcement. Revenue for 2023 was $3,951 million (YoY +15.6%), with net profit attributable to mother of $0.12 billion, of which the non-recurring impact was $344 million, mainly reduced from revenue by the company in accordance with transaction fee rate adjustments at the request of the clearing agency; the adjusted EBITDA was 556 million yuan (YoY +160.6%). Overall gross margin in '23 was -11.5pct to 18.7% year over year, and gross margin was 25.2% after excluding the impact of non-recurring revenue.

Payment business: GPV and rates achieved strong growth, and the increase in the number of superimposed merchants drove revenue growth to remain high. GPV +29.2% YoY to 2.88 trillion yuan in '23; payment rate increased from 12.3bp in '22 to 13.3bp (excluding non-recurring revenue impact); number of active merchants +13.3% YoY to 9.22 million.

In-store e-commerce business: The partnership model and strategic benefits to merchants lead to a decline in revenue, and cost reduction and efficiency, and continued to narrow losses. In '23, GMV was +30.3% to 4.3 billion yuan, with revenue of 103 million yuan; gross margin increased to 80.3%; net loss of 44 million yuan, narrowing by 79.4% year on year.

Merchant Solution: The recovery in the willingness of offline merchants to pay drives revenue recovery. Merchant Solution revenue in 2023 was +17.2% YoY to $363 million, of which 23H2 +94.6% YoY to $196 million. By the end of '23, the number of active merchants was +30.8% YoY to over 1.6 million.

Profit forecasting and investment advice. The GPV growth rate for payment services is expected to be slightly higher than that of the industry in 24-26, and rates will basically be maintained; in-store e-commerce GMV will grow at about 10%, rates will be maintained, and losses will shrink further; and merchant solution revenue growth will be about 10% to 14%. The company's revenue for 24-26 is estimated to be 46.98/53.05/5.975 billion yuan, respectively, and adjusted net profit to mother is 3.79/470/ 544 million yuan, respectively. Referring to comparable company valuations, the adjusted net profit for 24 years was assessed at 17 times PE, corresponding to a reasonable value of HK$15.46 per share. Maintain a “buy” rating.

Risk warning. The macroeconomic environment and services fell short of expectations; industry competition intensified, payment business expansion slowed down; in-store e-commerce grew less than expected, losses increased, etc.