Incident Overview
1) Recently, the New World released the “2023 Annual Report”. In 2023, the company achieved total revenue of 8.250 billion yuan, an increase of 11.94% year on year; net profit to mother was 1.04 billion yuan, up 362.91% year on year; net profit after deducting non-return to mother was 1,084 billion yuan, an increase of 136.82% year on year.
2) On April 30, the company released the “2024 Quarterly Report”. 2024Q1 achieved revenue of 1,741 billion yuan, a year-on-year decrease of 8.34%; net profit to mother was 249 million yuan, a year-on-year decrease of 16.93%; net profit without return to mother was 280 million yuan, an increase of 12.53% year-on-year.
24Q1 net profit after deducting non-return to mother grew rapidly, and gross margin continued to optimize the revenue side. By business, 1) Receipt and merchant operation business: achieved revenue of 3.244 billion yuan (YoY +33.57%), the revenue side increased high, gross margin reached 31.87%, +25.74pcts year on year, billing industry rate repair and industry supply-side clearance continued to be realized; 2) Smart terminal business: achieved revenue of 31.99% (YoY -4.07%), mainly due to short-term contraction in the domestic market, and maintained a relatively good overseas business Trend: Revenue of 2,253 billion yuan (YoY +8.69%) was achieved in '23, and the optimization of the revenue structure led to gross margin of +4.41pcts year-on-year to 37.68%. Looking at Q1, the slight decline on the revenue side was mainly due to delays in overseas logistics and some smart terminal orders failed to confirm revenue. The merchant operation service sector performed steadily, with revenue reaching 900 million yuan, and the sector's net profit reaching 180 million yuan, an increase of over 39% over the previous year.
On the profit side, the company achieved a high year-on-year increase on the profit side in 23, mainly due to 1) significant optimization of gross margin, which reached 35.23% year-on-year; 2) the company's revenue side significantly repaired and diluted various expense ratios. The total of the company's three expense ratios in '23 was -1.89pcts. This trend continued in 24Q1. 1) The company's comprehensive gross margin reached 38.93%, which we believe is mainly due to the continuous restoration of the gross margin of the company's billing business; 2) the total cost ratio of the three categories is still declining. The net profit growth rate of the 24Q1 company was negative mainly due to fluctuations in the share prices of participating companies, which decreased by 111 million yuan over the same period last year. Net profit after deducting non-return to mother is more indicative, and it still achieved double-digit growth even with some revenue delays.
Supply-side optimization of the billing business continues to be implemented, and the international strategy has entered the harvesting business. By the end of 2023, 16 payment institutions with national bank card receipt licenses had been cancelled. Currently, there are only 25 left, and payment licenses continue to shrink. Furthermore, the November 259, 2023 document was officially implemented to achieve “one machine, one household, one code”, further stricter supervision, and accelerated the speed of industry clean-up. We believe that in the context of stricter industry regulations, vendors that provide high-quality products and services will have a competitive advantage in the long run. The company introduced Shanhao's intelligent management team last year, which is deeply involved in merchant operations and has strong integrated SaaS service capabilities. In 2023, the company has now provided various business services and fintech services to more than 3.7 million active merchants, achieving revenue of 1,095 billion yuan per year. In 2023, the company's transaction volume reached 2.5 trillion dollars, an increase of 8% over the previous year, and achieved positive growth even under pressure from the industry. We believe that on the one hand, it reflects the implementation of the logic of clear industry, and on the other hand, it also reflects the further improvement of the company's position in the industry. In terms of smart payment terminals, in 2023, the company successively established 5 new subsidiaries in Singapore, Japan, Europe, North America and other regions to further expand overseas markets. We believe that overseas markets still have great potential for future development: 1) There is still room for improvement in the penetration rate in Latin America, the Middle East and Africa, etc., and 2) there is a new demand for intelligent upgrading of equipment in Europe, America, and the Asia-Pacific region. The gross margin of the company's overseas business reached 49.86% year-on-year in '23. We believe that product-side revenue structure optimization is the main reason. The company has successfully achieved low card penetration in Latin America and the Middle East and Africa. According to Nielsen data, the company became the world's number one shipping manufacturer in 2022, and will continue to benefit from the rapid development of overseas markets in the future.
Investment advice:
The company is the world's leading provider of smart payment solutions, and the industrial chain layout is complete.
In the short term, the gradual recovery of domestic consumption and the clearance of production capacity prompted the company's billing business to improve, leading to rate flexibility. In the medium to long term, along with the increase in the penetration rate of smart POS machines in overseas regions, it will bring continuous growth to the company's electronic payment terminal business. In addition, the company cooperated with the Zidong Taichu multi-modal model of the Chinese Academy of Sciences in the AI field, with broad application scenarios and promising prospects. We expect the company's revenue for 2024-2026 to be 92.57/103.87/12.422 billion, respectively, and net profit to mother of 12.24/14.56/190 billion, respectively. Maintaining the buy-A investment rating, the target price for 6 months is 23.8 yuan, which is equivalent to a dynamic price-earnings ratio of 20 times 2024.
Risk warning: The macroeconomy falls short of expectations, overseas market and policy risks, regulatory policy risks in the billing industry, increased market competition, and the development of digital yuan falls short of expectations.