Introduction to this report:

The decline in payment transaction amounts was compounded by a decrease in the net receipt rate, and the company's third-quarter results declined sequentially. As an industry leader, the company benefits from a clear supply side and is still optimistic about the company's development.

Key points of investment:

Maintaining the “Overweight” rating, the target price was raised to 27.90 yuan, corresponding to 30xP/E in 2024.

The company's 2024Q3 revenue/net profit/net profit after deducting non-net profit of 4.392/0.513/0.516 billion yuan was -0.81%/-17.49%/7.26% YoY, lower than expected. Considering the decline in payment transaction volume in the industry, the adjusted 2024-2026 EPS was 0.93/1.07/1.21 yuan (1.08/1.22/1.36 yuan before adjustment).

Considering the valuation level of the industry, and the company has a competitive advantage as a leader in the industry, it will give 2024 30 XP/e, maintain the “gain” rating, and raise the target price to 27.90 yuan.

The decline in payment transaction amounts combined with a decrease in net receipt rates led to a decline in third-quarter results. The company's digital payment business revenue was 3.91 billion yuan, accounting for 89% of the company's revenue. In the payment business, the transaction amount for the first three quarters was 3.19 trillion yuan, -6% year over year, with a code scan transaction amount of 1 trillion yuan, and a bank card transaction amount of 2.18 trillion yuan, -15% year over year; it is estimated that the net receipt rate for the first three quarters was 0.1226%, up from the end of 2023. The decline in revenue in the first three quarters was mainly due to a decline in transaction amount. Looking at the third quarter of a single quarter, the company's third-quarter revenue/net profit to mother was 1.408/0.093 billion yuan, -5.44%/-55.78%. The transaction amount for the third quarter was 1.04 trillion yuan, -1.21% YoY. The net receipt rate for the third quarter was 0.1227%, a decrease of 0.0042 pct from the second quarter (the net rate for the second quarter was 0.1268%). The month-on-month decline in the net receipt rate and payment transaction amount led to a month-on-month decline in payment revenue in the single quarter.

Deeply lay out the “Payment+” business to help grow performance: considering the increase in the size and share of the company's code scanning business, the supply-side clearance company's market share increases, and the company is optimistic about the growth of the company's payment business. In addition, the company has continuously improved “Payment+” industry solutions, relied on an open platform to broaden revenue sources in response to customers' different needs such as collection, billing, orders, statements, and marketing.

In terms of cross-border payment business, the company is deeply exploring B2B foreign trade business models to create scenario-based, personalized and integrated cross-border payment solutions for Chinese brands going overseas. The total number of cross-border payment service merchants has exceeded 0.09 million. The company began mid-term dividends in the first half of 2024. The dividend amount was 0.32 billion yuan, accounting for 78% of non-profits. The company maintained a high dividend ratio at the beginning of its listing. As current performance continues to grow, the company is expected to resume high dividends and increase the frequency of dividends to give back to investors.

Catalysts: Improved competitive landscape in the offline billing market, increased rates and scale.

Risk warning: Economic recovery falls short of expectations and affects offline billing business.