Core Viewpoint - Lakala (300773.SZ) plans to divest its 100% equity stakes in Guangzhou Lakala Puhui Financing Guarantee Co., Ltd. and Guangzhou Runxin Commercial Factoring Co., Ltd. to Guangzhou Zhongying Weirong Intelligent Technology Co., Ltd., and its 100% equity stake in Tibet Hongcheng Technology Development Co., Ltd. to Tibet Kaola Jinke Network Technology Service Co., Ltd. The final transaction prices are yet to be determined. This move aims to optimize the company's asset structure, reduce financial risk exposure, and focus on its core payment business [1]. Group 1 - The company intends to divest non-core financial businesses [1] - The divestiture includes 100% stakes in multiple subsidiaries [1] - The transaction is part of a strategy to concentrate resources on core operations [1]

Core Viewpoint - The digital currency industry is experiencing positive developments, benefiting companies like Lakala, which has seen its stock price rise over 100% in the past three months despite poor financial performance [1][3]. Financial Performance - Lakala reported a revenue of 5.762 billion yuan and a net profit of 351.2 million yuan for 2024, with revenue and net profit growth rates of -2.98% and -23.26% respectively, marking the second occurrence of "double decline" in three years [3][8]. - In Q1 of this year, Lakala's revenue was 1.3 billion yuan, with a revenue growth rate of -13.02%, and a net profit of 100.6 million yuan, reflecting a net profit growth rate of -51.17%, indicating the worst performance in Q1 historically [3][8]. Market Dynamics - The stock price surge began in April, driven by policy support, including the Shanghai International Financial Center's plan to enhance cross-border financial services and promote blockchain technology [3][6]. - The Hong Kong government's passage of the Stablecoin Bill has positioned it as a leading financial center for stablecoin regulation, igniting speculation in A-shares and boosting related stocks [3][5]. Business Model and Challenges - Lakala's main business is B-end acquiring, which accounted for 89.7% of its revenue in 2024. However, the company faces challenges in expanding its merchant base and increasing average net settlement rates due to intense market competition [7][8]. - The revenue from Lakala's payment business was 5.165 billion yuan in 2024, showing minimal growth from 5.18 billion yuan in 2023, indicating stagnation in its core operations [8]. New Business Directions - Lakala is focusing on new business opportunities in cross-border payments and stablecoins to overcome traditional business challenges. The company aims to enhance its international competitiveness through its planned Hong Kong listing [9][10]. - The cross-border payment market is substantial, with China's cross-border e-commerce import and export volume reaching 2.63 trillion yuan in 2024, but Lakala's cross-border payment transaction volume was only 49.2 billion yuan, representing a mere 1.16% of its total payment transaction volume [9][10]. Stablecoin Prospects - Currently, Lakala does not have stablecoin-related operations, and while it has hinted at accelerating the application of digital currencies in cross-border scenarios, the challenges of entering the stablecoin market are significant [11]. - The stablecoin sector is still in its early stages, facing regulatory, technical, and market acceptance challenges, making it difficult for Lakala to develop this business effectively [11]. Shareholder Activity - Following the stock price increase, Lakala's shareholders have begun to reduce their holdings, with significant share sales reported, including a planned reduction of up to 19.27 million shares by a major shareholder [11].

Financial Data and Key Metrics Changes - The company reported a significant turnaround from headwinds in 2023 to tailwinds in 2024, highlighted by a recent share buyback announcement [13] - The payment revenue has shown a remarkable growth with a compound annual growth rate (CAGR) of 123% from 2023 to 2024 [15] - The overall deposit base has increased by 31% off balance sheet, indicating a positive trajectory for the company's franchise value [16] Business Line Data and Key Metrics Changes - The fintech banking segment has experienced a gross deposit CAGR of 29% and gross fees CAGR of 86%, despite a slight decline in 2024 due to exiting the digital space [18] - The gaming vertical holds an impressive 84% market share, contributing to the company's growth strategy [14] Market Data and Key Metrics Changes - The company has nearly $500 million in gaming deposits, showcasing its strong position in the gaming market [15] - The overall market for the products and services offered by the company has markedly improved in recent months, creating a favorable environment for growth [21] Company Strategy and Development Direction - The company's strategy focuses on being trusted partners on the financial frontier, emphasizing values such as respect, commitment, and teamwork [14] - The growth vehicles identified include software as a service, banking as a service, and a strong emphasis on payments, which is rapidly growing [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, noting that the climate and market conditions for their products and services have improved significantly [21] - The company aims to maintain strong asset quality and capital ratios, positioning itself for future growth [19] Other Important Information - The company has appointed two new directors to the board, which is expected to enhance its governance and strategic direction [2][8] - The meeting included discussions on executive compensation and the appointment of an independent registered public accounting firm for 2025 [10][11] Q&A Session Summary - No specific questions were recorded during the Q&A session, indicating a smooth approval process for the proposals presented [11]

Financial Data and Key Metrics Changes - The company reported a 19% year-over-year growth in revenues and a 2% quarter-over-quarter increase, despite typical seasonality in Q1 [11] - Adjusted gross profit also grew by 19% year-over-year but decreased by 3% sequentially, primarily due to lower quarter-over-quarter TPV and higher service costs [11] - Adjusted net income increased by 23% year-over-year but decreased by 17% quarter-over-quarter, attributed to lower adjusted gross profit and higher investments in distribution channels [11][12] - Adjusted basic EPS was BRL1.97 per share, reflecting a 36% year-over-year increase but a 13% sequential decrease [12] - The company repurchased BRL843 million worth of shares during the quarter, contributing to a distribution yield of 12% over the past twelve months [8][12] Business Line Data and Key Metrics Changes - The Financial Services segment saw revenues grow by 20% year-over-year, driven by repricing initiatives, while adjusted EBT for this segment grew by 21% [18] - The Software segment's revenues increased by 11% year-over-year, mainly due to higher recurring revenues and an increase in the active client base [19] - The MSNB payments active client base grew by 17% year-over-year, reaching 4.3 million clients, with transaction volumes for MSNB cards growing by 10% and PIX volumes by 95% [12][13] Market Data and Key Metrics Changes - Total client deposits reached BRL8.3 billion, a 30% year-over-year increase but a 5% sequential decrease due to seasonality [14] - The company’s total credit portfolio reached BRL1.4 billion, with a focus on working capital offerings to SMB clients [17] - The coverage ratio for provisions was 256%, indicating a stabilization in risk management practices [17] Company Strategy and Development Direction - The company is focused on profitability and has implemented a disciplined capital allocation strategy, including a new share repurchase program of up to BRL2 billion [9][8] - The strategy includes a shift towards time deposits to optimize funding costs and improve capital structure [15][16] - The company aims to enhance its service offerings and distribution capabilities to maintain competitive advantages in the market [54] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging macroeconomic environment with rising interest rates but expressed confidence in the company's ability to navigate these challenges [10] - The company expects some deceleration in TPV growth due to repricing efforts and macroeconomic conditions, but overall trends align with long-term guidance [32] - Management emphasized the importance of maintaining a rational competitive environment and focusing on client-centric solutions [5][6] Other Important Information - The company has begun migrating retail deposits to time deposits as part of its cash sweep strategy, which is expected to yield benefits in future quarters [91] - The effective tax rate for the quarter was 19.7%, down from 20.6% in the previous year, reflecting improved tax management [24] Q&A Session Summary Question: Outlook for TPV growth - Management indicated that TPV growth is expected to decelerate somewhat due to higher interest rates and repricing efforts, but overall trends remain in line with long-term guidance [32] Question: Negotiations regarding LINX - Management confirmed ongoing negotiations with Totus regarding LINX, but specific details on valuation and timing could not be disclosed [35] Question: Impact of competition from Mercado Pago and Fiserv - Management noted that while competition is monitored closely, they have not seen significant impacts on their core MSMB segment from new entrants [60][66] Question: Pricing strategy in light of changing yield curves - Management stated that they do not plan to adjust pricing policies despite recent changes in the yield curve, as the majority of repricing has already been implemented [46] Question: Cash conversion and net cash position - Management explained that the decline in net cash was due to seasonal effects and one-off expenses, with expectations for improved cash generation in future quarters [78][81]

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].

Core Viewpoint - Lakala's financial performance in 2024 and Q1 2025 shows a decline in revenue and net profit, primarily due to reduced hardware sales and pressure on payment business, but the company benefits from improved gross margins in both payment and technology service sectors [1][2][3]. Financial Performance - In 2024, the company achieved operating revenue of 5.759 billion, a year-on-year decrease of 2.96%, and a net profit attributable to shareholders of 351 million, down 23.26% year-on-year [1]. - For Q1 2025, the company reported operating revenue of 1.299 billion, a decline of 13.01% year-on-year, and a net profit attributable to shareholders of 101 million, down 51.71% year-on-year [1][3]. Business Segments - Payment business revenue in 2024 was 5.17 billion, a slight decrease of 0.27%, with a gross margin of 27.22%, up 0.92 percentage points, driven by a higher proportion of higher-fee QR code transactions [2]. - Technology service revenue in 2024 was 280 million, down 18.43%, but with a gross margin of 90.92%, up 19.03 percentage points, mainly due to a 67.71% increase in high-margin external card organization marketing services [2]. Market Dynamics - The third-party payment market is undergoing optimization, with regulatory measures leading to the exit of smaller players, which may create new opportunities for industry leaders like Lakala [4]. - In 2024, 10 payment licenses were revoked, bringing the total to 100, indicating a trend towards market consolidation [4]. Growth Opportunities - The cross-border payment sector presents significant growth potential, with the company actively expanding its services in emerging markets. In Q1 2025, the number of cross-border merchants and transaction volume increased by 76% and 85% year-on-year, respectively [5]. - The recent regulatory framework aims to enhance the convenience of cross-border financial services, which could benefit qualified third-party payment institutions [5]. Investment Outlook - The company maintains a "buy" rating, with projected net profits for 2025-2027 of 398 million, 399 million, and 415 million, reflecting growth rates of 13.3%, 0.3%, and 4.1% respectively, supported by its strong position in the third-party payment sector [6].