Incident: On October 28, La Cala released its 2024 three-quarter report, and the results fell short of expectations. 9M24 achieved net profit of 0.51 billion/yoy -17.5%, deducted non-net profit of 0.52 billion/yoy +7.3%, 9M24 achieved operating income of 4.39 billion/yoy -0.8%; 3Q24 achieved net profit of 0.09 billion/yoy -15.2%, and revenue of 1.41 billion yuan/yoy -3.3%.

The payment business remained steady, and the deduction of non-net profit in the third quarter was clearly under pressure. 1) Performance split: 9M24's payment business and other businesses (mainly technology service business and hardware sales) revenue were 3.91 billion yuan and 0.48 billion yuan, +1.9% and -18.4%, respectively; 3Q24 payment business revenue 1.28 billion yuan/yoy -1.6%/qoq -4.4%. 2) Non-recurring profit and loss and payment business seasonally dragged down third quarter results:

The net profit of the 3Q24 company was 0.09 billion yuan/yoy -15.2%, after deducting 0.1 billion yuan/yoy -47.6% of non-net profit. The profit pressure was mainly due to seasonal differences in the payment service business, and the recurring profit and loss investment income of 0.05 billion yuan was included in the same period last year. 3) Good cost control: 9M24's sales, management, and R&D expenses rates were 8.0%, 4.4%, and 4.4%, respectively; 9M24's comprehensive gross margin reached 31.2% /YoY+1.61pct compared to 1H24-1.69pct, and the year-on-year increase in gross profit is expected to be driven by an increase in product rates and a decrease in channel commission ratios.

Bank card billing GPV is still under pressure, but it is superior to the industry. Code scanning payments continue to increase rapidly, and net rates are stable. 1) The GPV market share has been rising steadily: 9M24 achieved a payment transaction amount of 3.2 trillion yuan/yoy -6.4%. Among them, the scale of bank card transactions and code scanning transactions was 2.2 and 1 trillion yuan, respectively, -14.8% and +18.9%, respectively. The decline in bank card receipt GPV was lower than that of the industry, and the market share increased steadily.

2) The net rate of payment services increased year-on-year: According to estimates, the 9M24 company's average net billing rate was 0.123% /yoy+1.00bp/, the same as 1h24. It is expected that the proportion of high-rate code scanning transactions has increased steadily and the price increase for some of the company's products.

Leading domestic cross-border payment companies continue to benefit from the expansion of the cross-border payment market. Since 2019, La Cala has been actively developing cross-border business. In 19, the company became a member organization of the four major international card organizations, launched the American Express RMB card receipt business in 20 years, and strategically invested in the cross-border payment service provider Skyee in 21. By the end of 1H24, La Cala's cross-border payment network covered more than 100 countries, with a cumulative total of more than 0.09 million service merchants, leading the industry in cross-border payment layout. At the 16th BRICS summit in October 24, Russia proposed establishing the BRICS BRICS PAY payment system and speeding up the “de-dollarization” process of the payment system. As a leader in cross-border payments, La Cala is expected to benefit from an increase in the volume of cross-border payments.

Investment analysis: The net profit of La Cala 2024E-2026E is expected to be 0.67, 0.82, and 0.94 billion yuan, +46%, +23%, and +15% year-on-year; the current closing price corresponds to the 2024-2026 dynamic PE of 26.8 times, 21.9 times, and 19.1 times, respectively.

Risk warning: offline payment fixes fall short of expectations; payment business rate increases fall short of expectations; industry policy changes.