Although the quarterly data is strong, YEAHKA's valuation is not cheap

YEAHKA's third-quarter business data is impressive, but the company's valuation is high, limiting the potential for stock price increases.

Key Points:

• Third-quarter GPV increased by 50% quarter-on-quarter
• Expected price-to-earnings ratio exceeds 30 times, valuation is not cheap

Bai Xinrui

YEAHKA Limited (09923.HK), once favored by American stock market guru Cathie Wood, saw its stock price continuously decline after peaking at HKD 16.58 on June 26, with a cumulative drop of over 50% at one point. However, the group announced operational data on November 24, stating that overseas payment transaction volume (GPV) increased compared to last year, which stimulated the stock price to rise by 7.4% on the same day.

Founded in 2011 by Liu Yingqi, who previously served as the general manager of Tencent's (0700.HK) Tenpay, YEAHKA received strategic investment from Tencent in 2012. In 2013, YEAHKA established LeShua Technology, which obtained payment licenses for bank card acquiring and mobile phone payments from the People's Bank of China in 2014, and successfully renewed its license in July 2019.

As the business continues to develop, the group has transformed from its early bank card "Point of Sale" (POS) acquiring business into China's largest independent non-bank QR code payment service provider, while also having an in-store e-commerce business. Liu Yingqi is currently the major shareholder of YEAHKA, holding a 35% stake.

According to the latest business announcement, the group's overseas business performed outstandingly, with third-quarter overseas GPV nearing RMB 1.3 billion, surpassing last year's total overseas GPV (approximately RMB 1.1 billion), and also up 50% from the second quarter's RMB 800 million. The group explained that its invested enterprise, Fushi Technology, expanded its service scope to provide services for various Asian merchants such as Playmade, Zhenbao, and Shilin Taiwanese snacks.

Overseas Payment Rates Surpass Domestic

Referring to YEAHKA's interim performance introduction, Fushi focuses on a one-stop SaaS digital platform for merchants, aiming to create a demand-driven immersive shopping experience platform, with the goal of building AI stores, especially targeting international clients with customized services.

Domestic brokerage Pacific Securities pointed out that YEAHKA's overseas business payment rates are about five times that of the domestic market, with a gross profit margin exceeding 50%, which is also about four times that of the domestic market. Therefore, the 50% quarter-on-quarter growth in the group's third-quarter overseas payment GPV suggests that the previous quarter's performance will be impressive.

More importantly, YEAHKA's overseas business still has room for expansion. Pacific Securities noted that YEAHKA is leveraging global financial institutions like HSBC for payment channels, planning to expand aggressively in major economic powerhouses like the United States and Japan, and accelerate the construction of a global ecosystem. It is believed that YEAHKA's business is likely to follow the model of European leading payment company Adyen.

Partnering with Meituan to Build Ecosystem

In terms of domestic business, YEAHKA ventured into in-store e-commerce in 2020, where consumers complete transactions on online platforms, involving purchases or reservations, and then enjoy services or pick up goods at designated physical stores. Benefiting from partnerships with SaaS ecosystem partners like Meituan (3690.HK), YEAHKA not only jointly expands channels but also enhances the service quality for merchants and consumers, with third-quarter domestic GPV reaching RMB 616.3 billion Although the payment rates in mainland China are lower than those of overseas businesses, the number is still expected to grow, especially as YEAHKA focuses on local life service platforms. According to research firm iResearch, the scale of China's local life services is expected to exceed 35 trillion yuan by 2025, which corresponds to a growth of 12.6% from 2020 to 2025. The vast local life market and the continuous increase in penetration rates will provide broader development space for YEAHKA's in-store e-commerce services.

Although competition in in-store e-commerce is currently fierce, with content platform providers such as Douyin and Kuaishou (01024) also entering the market, the industry's largest player is Meituan. Meituan closely collaborates with YEAHKA, focusing on medium and large merchants, while YEAHKA uses payment as an entry point, particularly targeting small and micro merchants with low levels of digitalization. After the pandemic, the digital transformation of small and micro merchants has become urgent, presenting significant growth opportunities for YEAHKA.

On the other hand, in the era of artificial intelligence, YEAHKA has launched AI solutions for merchants. Its advertising precision marketing company, Chuangxinzongcheng, allows merchants to automatically generate images and videos by simply inputting keywords, greatly reducing labor costs for actors, editing, and other tasks.

In just the first half of the year, YEAHKA's related transaction volume has grown by 40% month-on-month, with material costs significantly reduced by 80%, accounting for 20% of the total video production volume of AI-generated content for the group in the first half of the year. Chuangxinzongcheng has also become the first partner within the ByteDance ecosystem, the parent company of Douyin, capable of transforming content into virtual characters using computer technology, creating a digital smart business ecosystem.

Overall, YEAHKA possesses concepts of artificial intelligence and payment, along with close relationships with companies like Meituan and Douyin, combined with strong growth in overseas business. Bloomberg's comprehensive market analysis estimates that YEAHKA's revenue is expected to regain growth this year, potentially reaching 13.35 billion yuan, an annual increase of 8.6%, with net profit expected to surge by 38.6% to 114 million yuan