Web 3 Transition And Cross Border Payments Will Drive Long Term Earnings Potential

Catalysts

About Lianlian DigiTech

Lianlian DigiTech is a global financial technology company providing compliant digital payment, cross border settlement and value added services to small, medium and large enterprises.

What are the underlying business or industry changes driving this perspective?

• Accelerating globalization of Chinese manufacturing and cross border e commerce is driving TPV in global payments, where Lianlian already posted 94 percent TPV growth and 27 percent revenue growth, supporting sustained double digit revenue expansion.
• Rapid growth in B2B and services trade volumes, which have already exceeded 100 percent TPV growth, should structurally lift large ticket flows through Lianlian infrastructure, enlarging the revenue base even if take rates normalize in the low 20 basis point range.
• Expansion of licensed coverage with 65 plus global payment qualifications and new Hong Kong SFC type 3 and virtual asset trading licenses positions the firm to capture rising demand for compliant multicurrency and derivative solutions, supporting higher margin fee income and earnings.
• Ongoing investment in blockchain, Web 3 and stablecoin based settlement is set to lower routing and FX costs for SMEs and platforms, enabling Lianlian to defend high payment gross margins around the low 70 percent range while scaling volumes and operating profit.
• Shift in business mix toward higher growth value added services such as virtual and commercial cards, corporate wallets and digital equity products should deepen customer stickiness and lift fee density per client, enhancing net margins and core earnings over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Lianlian DigiTech's revenue will grow by 23.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 114.4% today to 0.2% in 3 years time.
• Analysts expect earnings to reach CN¥5.5 million (and earnings per share of CN¥0.13) by about December 2028, down from CN¥1.7 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as CN¥38.4 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 3065.5x on those 2028 earnings, up from 3.9x today. This future PE is greater than the current PE for the HK Diversified Financial industry at 9.2x.
• Analysts expect the number of shares outstanding to decline by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.55%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The long-term transition from Web 2 to Web 3 and stablecoin based settlement may be slower or more fragmented than management expects. This would delay monetization of recent heavy investments in blockchain and virtual asset infrastructure and weigh on revenue and earnings growth.
• As cross border B2B and services TPV scales rapidly with lower take rates around the low 20 basis point range, competitive pricing pressure and customer bargaining power could intensify over time. This could compress net margins even if payment volumes continue to rise.
• Regulatory risk around virtual assets, multicurrency derivatives and stablecoins in key markets such as Hong Kong, the United States and emerging regions may tighten or diverge. This could reduce the value of some of Lianlian DigiTech's 65 plus licenses and limit future product expansion, which would cap revenue and fee income.
• Future M&A and strategic investments funded by the enlarged cash balance and LianTong disposal gains could be mistimed or fail to integrate well. This could erode the current economies of scale, lift operating expenses and dilute core earnings.
• The sharp increase in reported net profit in the first half of 2025 relies heavily on one off gains from reducing the LianTong stake. If core operating profit growth slows from its current high base while these disposal gains do not recur, overall earnings could decline and fail to justify a higher share price over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of HK$13.83 for Lianlian DigiTech based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$15.79, and the most bearish reporting a price target of just HK$10.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be CN¥2.8 billion, earnings will come to CN¥5.5 million, and it would be trading on a PE ratio of 3065.5x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of HK$6.56, the analyst price target of HK$13.83 is 52.6% higher. Despite analysts expecting the underlying business to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.