AI Integration And Global Expansion Will Strengthen Future Prospects

Key Takeaways

• Yeahka's AI-driven cost optimization and international expansion are boosting margins and increasing revenue from high-demand overseas markets.
  
• Focus on profitable customer segments and proprietary tech adoption is enhancing gross margins and diversifying revenue towards higher-margin businesses.
  
• Macroeconomic volatility and strategic customer elimination have reduced revenue, while competition, regulatory pressures, and uncertain overseas expansion threaten margins and earnings stability.

Catalysts

An investment holding company, provides payment and business services to merchants and consumers in the People’s Republic of China.

• Yeahka's integration of AI solutions for revenue generation and cost optimization, such as automating price-setting and improving sales conversion, is expected to enhance net margins by reducing selling and administrative expenses by over 10% year-over-year.
  
• The international expansion strategy, which has led to over 50% GPV growth in regions like Singapore, positions Yeahka to significantly increase revenue from overseas markets with attractive economics and higher customer willingness to pay.
  
• Focusing on higher-quality and more profitable customers in the in-store e-commerce segment, coupled with increased upfront fees, is anticipated to improve revenue per merchant and further boost gross margins, which increased to 81.5% in the first half of 2024.
  
• Expanding one-stop payment and commerce enabling services to underserved markets, including lower-tier cities in China and new global channels, supports revenue growth in untapped segments with higher economic resilience.
  
• Adoption of proprietary technology allows Yeahka to continue diversifying its revenue structure toward higher-margin nonpayment businesses, significantly enhancing overall gross profit margins, demonstrating improved net profit potential as seen in the profit margin increase to 19% in 2024 from 17.7% in 2023.

Yeahka Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Yeahka's revenue will grow by 13.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 8.8% in 3 years time.
• Analysts expect earnings to reach CN¥443.3 million (and earnings per share of CN¥1.15) by about February 2028, up from CN¥10.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥603.9 million in earnings, and the most bearish expecting CN¥236 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, down from 379.4x today. This future PE is greater than the current PE for the HK Diversified Financial industry at 6.8x.
• Analysts expect the number of shares outstanding to decline by 0.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.98%, as per the Simply Wall St company report.

Yeahka Future Earnings Per Share Growth

Risks

• Macroeconomic volatility in China has led to a decline in the payment gross merchandise volume (GPV), which negatively impacts revenue.
  
• The decision to eliminate less profitable customers and projects has resulted in a revenue decrease of 23.5%, directly affecting earnings.
  
• Although the nonpayment business revenue increased, it still represents a smaller portion of the overall revenue, which can challenge the company's efforts to optimize and diversify revenue streams.
  
• Competition and regulatory pressures in the payment services market could impact the fee rate trend and the company's pricing power, affecting net margins.
  
• The overseas expansion strategy is at an early stage, with high uncertainty regarding its future contribution to revenue and profitability, posing potential risks to earnings stability.

Valuation

• The analysts have a consensus price target of HK$13.683 for Yeahka 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$16.7, and the most bearish reporting a price target of just HK$11.93.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥5.0 billion, earnings will come to CN¥443.3 million, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of HK$9.15, the analyst price target of HK$13.68 is 33.1% higher.
  
• 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.