Hong Kong stocks have seen a significant recovery in recent months, with the Hang Seng TECH Index ETF and the Hang Seng Internet ETF performing quite strongly.
However, after this round of continuous rallies, the valuation of Hong Kong stocks is still very cheap. The price-earnings ratio quantiles of the Hang Seng Index and the Hang Seng Technology Index are at historically low levels, lower than the Shanghai Composite Index, and much lower than the Nasdaq Index and the Nikkei 225 Index. Technology companies, in particular, are asset-light, have considerable performance growth, and generally have low valuations, which are extremely attractive to investors.
During this period of time, a company with Internet and technology attributes, Lianlian Digital, was officially listed on the Hong Kong stock market, becoming the "first stock of cross-border payment". As of the close of trading on May 16, Lianlian Digital was quoted at HK$9.300 per share, and its performance since its issuance was not a surprise. After a rapid bottom, the current trend is sideways, which is quite a bit of momentum.
In this case, what are the follow-up opportunities of Lianliandu? It just so happened that it recently released its 2023 annual report, perhaps we can pay more attention to its value potential.
The high-growth track brings broad growth space
To find an investment target with value potential, the judgment often follows three elements: a good track, a good company, and a good price.
A good track can guide you on the right investment path, a good company can put you ahead of others on this path, and a good price can allow you to get higher returns at the right time with less risk.
Following this logic, to assess the value of Lianlian, you first need to understand the prospects of the industry in which it operates.
China's cross-border payment industry has mainly benefited from the steady growth of the foreign trade market. In the first quarter of this year, the total import and export value of foreign trade exceeded 10 trillion yuan for the first time, a year-on-year increase of 5%. Specific to the new format of cross-border e-commerce, the growth rate is faster, with a growth rate of 9.6%.
At the policy level, the General Office of the State Council issued a document last year to support foreign trade enterprises to expand sales channels through new formats and models such as cross-border e-commerce. The "14th Five-Year Plan for E-commerce Development" proposes that by 2025, the cross-border e-commerce transaction volume will reach 2.5 trillion yuan.
It can be seen that China's cross-border payment industry is also a very obvious sunrise industry to serve Chinese enterprises to "go overseas", and Lianlian Digital is on a high-growth track.
According to a research report, the market size of China's cross-border digital payment service industry will reach 5.9 trillion yuan in 2023, with a compound growth rate of 27.97% from 2019 to 2023. In 2024, the market size of China's cross-border digital payment service industry will reach 7.5 trillion yuan.
Further, we also need to clarify the following three new understandings of the current mode of Chinese enterprises "going overseas":
First, the global layout of the cross-border e-commerce industry and China's production capacity have accelerated overseas through cross-border e-commerce, fully supporting the mature markets of Europe and the United States, where consumer demand is growing rapidly, and also meeting the needs of emerging markets such as Southeast Asia, South America, and the Middle East. The "small amount + high frequency" online transaction scenario of cross-border e-commerce will more obviously drive the development of the third-party payment industry.
Second, in recent years, the global economic and social environment has changed, the demand for online shopping, takeaway, online games, online entertainment and other needs has exploded, the consumption mode of individuals and families has accelerated "online", and China's games and pan-entertainment products are also accelerating "going overseas". And this part is mainly the target market of third-party payment institutions.
Third, the destinations of Chinese enterprises to "go overseas" have not only been in the European and American markets, but also emerging markets such as the Middle East, Southeast Asia, and Latin America have also become the main direction of attack, and the market scope covered by China's cross-border payment service institutions has been further expanded.
This together determines that Chinese enterprises are accelerating globalization, so in third-party cross-border payment, the gradual increase in transaction scale and transaction frequency is an inevitable trend. It is foreseeable that Lianlian Digital will have a broader space for growth in the future.
A clear path to profitability underpins high performance growth
Let's take a look at Lianlian Digital's 2023 financial report, and we will find that it has stepped out of the trend of continuous acceleration in terms of performance.
From the perspective of core business structure, digital payment services are the main source of revenue for LianLian Digital, and at the same time, it continues to expand value-added services with payment as the core. With the business structure composed of payment services + value-added services, Lianlian Digital has built its own technology platform, provided customers with one-stop solutions, and grasped customer needs more accurately.
The above layout will bring about the expansion of customer scale and the increase of activity, driving the rapid growth of transaction volume and revenue.
Judging from Lianlian Digital's financial report, the total payment volume (TPV) of its digital payment services reached RMB 2.0 trillion, a year-on-year increase of 73.5%, and the number of active customers in 2023 reached 1.3 million, a year-on-year growth rate of 50.8%, a rapid growth rate, reflecting strong customer recognition and customer stickiness.
In terms of revenue, Lianlian Digital's revenue in 2023 will be 1.028 billion yuan, while looking back on 2020-2022, the revenue will be 589 million yuan, 644 million yuan, and 743 million yuan respectively, maintaining steady growth.
Among them, global payment services are the main source of revenue, and the revenue of this part will be 656 million yuan in 2023, a significant increase of 37.1% year-on-year. Revenue from value-added services grew even more rapidly, increasing by 46.7% year-on-year to RMB134 million.
(Source: Lianlian Digital 2023 Financial Report)
In terms of profitability, Lianlian Digital's financial report released a very positive signal.
Lian Digital's loss for the year narrowed significantly by 28.5%, from RMB916.9 million for the year ended 31 December 2022 to RMB654.2 million for the year ended 31 December 2023. Among them, Lianlian accounted for a net loss of RMB664 million, an equity incentive expense of RMB191 million and a listing fee of RMB59 million, while Lianlian's own non-GAAP profit was RMB16 million. This shows that aside from strategic investment, share-based payment and listing fees, Lianlian Digital has actually achieved a turnaround in its main business last year.
In other words, Lianlian Digital's operating conditions are gradually improving, and combined with the current industry development prospects and the company's performance growth trend, Lianlian Digital's self-hematopoietic ability will be further enhanced.
At the same time, LianLian Digital continues to increase its investment in R&D, and its R&D expenses in 2023 increased by 27.5% year-on-year to RMB268 million, which will help the company innovate in technology, products and services.
In addition, Lianlian Digital has successfully listed and obtained stronger financing capabilities, and will have more sufficient financial strength to invest in R&D, innovation and global layout in the future. This is expected to strengthen LianLian's competitiveness in the third-party cross-border payment market and provide strong support for long-term business development.
Therefore, standing under the general logic of Chinese enterprises "going overseas", the track targeted by Lianlian Digital has huge market opportunities, and the performance growth path is relatively clear. At the same time, the company is constantly proving its liquidity to the outside world, which is very attractive for funds inclined to value investing.
Three value opportunities emerge
At present, the pace of digital transformation in emerging markets is obvious to all, and the global digital payment market will open up unprecedented imagination.
In the Middle East, there is a trend to change the monolithic industrial structure dominated by oil and gas, and digital and technology industries such as ICT, digital infrastructure, smart manufacturing, and AI are expected to become the pillars of its future economy. In Latin America, the digital economy has become the bright spot of economic growth in the post-pandemic era, and there is a huge demand for digitalization, with institutions predicting that the value of the digital economy will reach $700 billion in 2025. In Southeast Asia, the GMV of the digital economy has shown a continuous upward trend, and the proportion of digital payments in transactions has officially exceeded 50%. And these are the key regions and markets for the future layout of Lianlian's digital future.
(Image: E-commerce scale in major Southeast Asian countries, unit: billion US dollars)
In the context of the accelerated development of global technology and digital economy, third-party cross-border payment service providers represented by Lianlian Digital are embracing unprecedented opportunities to serve Chinese enterprises to "go overseas".
Different from industry competition, Lianlian Digital obviously has a leading edge in terms of licenses.
By the end of 2023, LianLian Digital has obtained 64 payment licenses around the world and has built a payment service network covering 100 countries and regions around the world. What's more, LianLian Digital is currently the only Chinese payment company licensed in all 50 states of the United States, and it is also a fully licensed third-party payment institution at home and abroad.
At present, with the continuous expansion of China's foreign trade market and the improvement of supervision, the payment industry with "supervision as a teacher" has ushered in an accelerated reshuffle. From the perspective of demand, compliance operation has long been a necessary condition for Chinese enterprises to "go global".
In this way, the scarce value of Lianlian Digital will be further highlighted, and the advantages of the license will help it expand its global market share, and LianLian Digital will be able to seize the opportunity of the trend of comprehensive compliance supervision in the payment industry.
In addition, the demand for Chinese enterprises to "go global" continues to escalate, and they no longer simply seek a single service, but need one-stop cross-border professional services to cover the whole growth cycle and drive business growth. Lianlian Digital already has a strong one-stop service capability and is also expected to seize incremental opportunities in more industries.
Last year, LianLian Digital successfully established a joint venture with COSCO SHIPPING Logistics and Putai Technology to provide customers with better logistics services, once again enhance the ability of one-stop service, enhance customer recognition, and enable Lianlian Digital to have more market resources and further consolidate its leading position in the industry.
Combined with the current performance, Lianlian Digital already has a scale advantage, and once a company obtains a scale advantage, the market will accelerate towards the concentration of resources, and the "decisive moment" between players will soon come, and enterprises with scale effect will often win.
Therefore, the author believes that Lianlian Digital is likely to achieve brilliant results in emerging markets. At the same time, Lianlian Digital will soon enter the stage of high investment and enter the harvest period, and the future profitability elasticity may be stronger.
Aside from the attributable losses of associates, listing fees and equity incentive expenses, Lianlian Digital itself has achieved profitability last year, and if Lianlian Digital can continue to verify its growth potential in terms of performance in the future, the above value opportunities and growth logic have also been verified. Looking ahead, it will also be a high probability event that Lianlian Digital shows a sustainable value increase.
epilogue
Overall, I believe that now may be the right time to pay attention to the numbers.
As a third-party cross-border payment institution in China, Lianlian Digital has a good business content, and has formed a core barrier, gradually grasping the competitiveness of a few leading players.
Lianlian Digital has pressed the performance acceleration button, and now Hong Kong technology stocks are facing a good internal and external environment, and the future performance is likely to be like a bamboo, out of the upward curve.