Key points of investment:
Benefiting from higher rate levels, the company's profit improved in the first half of the year. With 2024H1, the company achieved operating income of 1.577 billion yuan, a year-on-year decrease of 19.52%; realized net profit of 0.449 billion yuan, an increase of 34.84% year-on-year; realized net profit deducted from mother of 0.397 billion yuan, an increase of 29.74% year-on-year. Looking at a single quarter, 2024Q2 achieved operating income of 0.795 billion yuan, a year-on-year decrease of 16.07%; realized net profit of 0.228 billion yuan, an increase of 13.91% year-on-year; and realized net profit deducted from non-mother of 0.186 billion yuan, a year-on-year decrease of 1.25%. We believe that due to fluctuations in the domestic billing market environment, the company's revenue declined year-on-year in the first half of the year, but benefiting from the continuous increase in billing rates, the company's gross margin level of receipt and value-added services increased dramatically, leading to a significant improvement in profits in the first half of the year.
The company's 24H1 gross profit margin was 43.17%, up 7.89pct year-on-year. In the first half of the year, the company's sales expense rate/management expense rate/R&D expense rate/financial expense ratio were 6.48%/6.61%/7.91%/-1.72%, respectively, -0.48pct/+0.03pct/+0.23pct/+0.09pct. In the first half of the year, the company continued to increase R&D investment, mainly investing in R&D resources for new application scenarios such as SoftPOS, digital yuan, and Hongmeng's domestic financial operating system.
The profitability of the billing business has increased significantly. The subsidiary Jialian Pay achieved revenue of 1.083 billion yuan in the first half of the year, a year-on-year decrease of 19.16%, mainly due to a year-on-year decline in transaction flow in the receipt business. In the first half of the year, the company processed a total of 0.072 billion yuan in transaction turnover, compared with 0.108 billion yuan in the same period last year, a year-on-year decrease of 33%. Facing changes in the market environment, the company actively adjusted and optimized its business strategy, continuously improved the quality of merchant payment services, and actively expanded the digital service scenario. The gross margin of receipt and value-added business reached 42.38% in the first half of the year, an increase of 13.56 pct over the previous year, and achieved net profit of 0.257 billion yuan, an increase of 27.86% over the previous year.
Breakthrough progress has been made in cross-border payments and overseas receipt. The company successfully obtained the Hong Kong MSO license in the first half of the year, and the global payment license layout was further improved. Products such as overseas local receipt and B2B foreign trade receipt launched by Paykka, the company's cross-border payment brand, have now been fully commercialized. In terms of cross-border payments, the company successfully won a bid for a bank's cross-border repayment business service project in the first half of the year, and reached strategic business cooperation with a number of platform-based companies to jointly provide one-stop payment solutions for cross-border enterprises. In terms of overseas billing, the company's EU local receipt business achieved rapid growth in merchant coverage and transaction flow in the first half of the year.
Electronic payment devices boost high-end markets such as Europe, America, and Japan. In the first half of the year, the company's electronic payment equipment business segment achieved revenue of 0.451 billion yuan, of which the overseas market was 0.437 billion yuan, accounting for 96.9% of overseas revenue.
On the domestic side, the company focused on developing the head office's bidding process and successfully won bids for payment equipment procurement projects for important customers such as Bank of China, China Construction Bank, and Postbank. On the overseas side, the company accelerated the localization of overseas business, continued to consolidate its share in key overseas markets such as the Middle East and Latin America, and at the same time boosted high-end markets such as Europe, America, and Japan. In the first half of the year, the company's revenue in the European, American, and Japanese markets exceeded 0.1 billion yuan, an increase of nearly 50% over the previous year.
Profit forecasting and investment advice. According to the company's 2016 semi-annual report, the company's subsidiary Jialian Pay had tax-related matters in previous years that needed to be adjusted. The total amount of 0.36 billion yuan required to pay all relevant taxes and late fees will be included in the company's current profit and loss in the second half of the year, which is expected to cause the company's net profit to mother to drop by 0.325 billion yuan in 24. Based on this, we expect the company's revenue for 2024-2026 to be 34.58/ 3.917/4.392 billion yuan, respectively, -9.0%/+13.3%/+12.1%; net profit to mother will be 5.56/10.27/ 1.215 billion yuan, respectively, -26.4%/+84.9%/+18.3%; EPS 0.99/1.83/2.17 yuan, respectively. Referring to comparable companies, the company was given a dynamic PE of 19-21 times in 2024, with a reasonable value range of 18.81-20.79 yuan, maintaining a “superior to the market” rating.
Risk warning. Industry demand falls short of expectations, rate increases fall short of expectations, and product development falls short of expectations.