Core Viewpoint - Lakala is seeking to list its shares on the Hong Kong Stock Exchange, aiming for an "A+H" share structure, amidst challenges of declining revenue and net profit, as well as shareholder reductions, while focusing on international expansion and a "Payment+" transformation strategy [4][22]. Company Background - Lakala, originally founded as QianKun Times in January 2005, transitioned to its current brand in 2009 and became a public company in 2019. It has established itself as a leading independent digital payment service provider in China, primarily serving small and medium-sized merchants [5][6]. Revenue Challenges - Despite leading market share, Lakala has faced significant revenue fluctuations, with a reported revenue of RMB 59.28 billion in 2023, a slight decrease to RMB 57.54 billion in 2024, and a further decline of 11.2% in the first half of 2024 [7][8]. The company reported a total revenue of RMB 40.7 billion for the first three quarters of 2024, down 7.33% year-on-year [8]. Profitability Analysis - Lakala's net profit has shown considerable volatility, with figures of -RMB 14.38 billion in 2022, RMB 4.57 billion in 2023, and RMB 3.51 billion in 2024. The first half of 2024 saw a 45% decline in net profit compared to the previous year [13][18]. The decline is attributed to reduced revenue from its core digital payment services due to changing customer payment habits and stricter merchant entry standards [13][22]. Margin Insights - The overall gross margin improved from 22.8% in 2022 to 29.9% in 2024, with digital payment services' gross margin rising from 20.2% to 27.2% during the same period. However, the gross profit for the first half of 2024 decreased by 32.6% year-on-year [9][10]. Shareholder Dynamics - Lakala has experienced significant shareholder reductions, with major shareholders like Lenovo Holdings and Sun Haoran reducing their stakes in the company. This has raised concerns about the company's financial stability [21][22]. Regulatory Environment - The implementation of the "Non-Bank Payment Institutions Supervision and Management Regulations" in May 2024 has increased compliance pressures, potentially leading to higher operational costs and stricter business limitations [22][23]. Strategic Focus - Lakala is focusing on international expansion and platform-based operations, planning to use the funds raised from the Hong Kong listing to enhance its overseas market presence and technological capabilities. The company reported a 70.4% year-on-year increase in cross-border payment business clients [23][25]. Industry Trends - The payment industry is shifting towards platform-based solutions, with a growing emphasis on cross-border payments and integrated service offerings. Lakala aims to adapt to these trends to remain competitive in a rapidly evolving market [25].

Core Viewpoint - The decline in payment transaction volume is the primary reason for the company's performance downturn, but as an industry leader, the company is expected to benefit from supply-side clearing and maintain a positive outlook for its development [1]. Financial Summary - The company maintains a "Buy" rating with a target price of 27.90 yuan, corresponding to a 31x P/E for 2026. Projected revenues and net profits for 2024 are 57.62 million yuan, 3.51 million yuan, and 5.53 million yuan, respectively, reflecting year-on-year declines of -2.98%, -23.26%, and -2.82%. For Q1 2025, revenues and net profits are projected at 13.00 million yuan, 1.01 million yuan, and 0.85 million yuan, showing year-on-year declines of -13.02%, -51.71%, and -62.97%. EPS estimates for 2025-2027 have been adjusted to 0.76, 0.91, and 1.11 yuan, respectively [2]. Payment Business Performance - In 2024, the company's payment business revenue is projected at 51.65 billion yuan, accounting for 90% of total revenue. The total transaction volume for the year is expected to be 4.22 trillion yuan, a year-on-year decrease of -6.43%. Notably, the scan code transaction volume is expected to increase by 13% to 1.36 trillion yuan, while card transaction volume is expected to decline by -14% to 2.86 trillion yuan. The net fee rate for the year is projected at 0.1224%, slightly improved from the end of 2023. The decline in revenue is primarily attributed to the drop in transaction volume [3]. Quarterly Performance - For Q4, the company anticipates revenues, net profits, and net profits excluding non-recurring items of 13.70 million yuan, -1.62 million yuan, and 0.37 million yuan, respectively, with quarter-on-quarter declines of -2.74%, -273.17%, and -64.20%. The transaction volume is expected to be 1.04 trillion yuan, a quarter-on-quarter decrease of -1.21%. The net fee rate is projected at 0.1219%, a slight decrease from Q3 [3]. Strategic Initiatives - The company is deeply investing in the "Payment+" business to drive transformation and growth. It is expected to benefit from increased market share due to supply-side clearing in the payment industry. The company is accelerating the integration of payment services with the SaaS industry, having covered 50,000 brand catering merchants in Q1 2025 with customized SaaS products. The cross-border payment business is also showing strong growth, with the number of cross-border merchants and transaction volume increasing by 76% and 85%, respectively. Additionally, the company is enhancing its merchant wallet app through AI to create intelligent applications for smart store management [4]. Market Dynamics - The competitive landscape in the offline acquiring market is improving, leading to enhanced fee rates and scale [5].