Source: Financial Tiger Network Author: LG
Chinese payment service provider LianLian Digital Technology Co., Ltd. (LianLian Digital) has now landed rumors of an IPO last year. On June 30, Lianlian Digital Company officially submitted a prospectus to the Hong Kong Stock Exchange and entered the IPO listing process, with CICC and JPMorgan Chase as joint sponsors and Credit Suisse as financial advisors. The prospectus disclosed that in the past three years, Lianlian Digital's business has achieved strong growth, but it is still in a loss-making state, and its cumulative net loss in the past three years has exceeded 2 billion yuan.
Financial data shows that Lianlian Digital's total revenue increased from RMB589 million in 2020 to RMB644 million in 2021 and further increased to RMB743 million in 2022, with a compound annual growth rate of 12.3% in the reporting period. In 2020, 2021 and 2022, the Company's gross profit margin was 64.3%, 68.2% and 62.7% respectively.
The vast majority of Lianlian Digital's revenue comes from digital payment services (including global payments and domestic payments). During the Reporting Period, digital payment services revenue increased from RMB538 million in 2020 to RMB588 million in 2021 and further increased to RMB630 million in 2022, accounting for 91.4%, 91.3% and 84.8% of the Company's total revenue in 2020, 2021 and 2022, respectively.
In 2020, 2021 and 2022, Lianlian Digital recorded net losses of RMB369 million, RMB7.49 and RMB917 million respectively.
According to Financial Tiger Network, Lianlian Shuke, the parent company of Lianlian Pay, was once regarded as one of the competitors of Ant Group. As early as 2021, LianLian Digital submitted pre-IPO support documents endorsed by CICC to mainland regulators, revealing very early IPO preparations, but there has been no news since then. In July last year, it was revealed that LianLian DigiTech planned to raise pre-IPO funding at a valuation of $3 billion, with plans to list in Hong Kong as early as this year. Lianlian Shu officials said at the time that it was inconvenient to respond.
Notably, the prospectus also mentions that Lianlian Shuke is preparing to submit an application for a virtual asset service provider licence to the Securities and Futures Commission of Hong Kong to set up a virtual asset trading platform in Hong Kong.
Who is Lianlian Mathematics? There are 64 payment licenses worldwide
The prospectus quoted Frost & Sullivan as saying that Lianlian Digital is one of the first digital technology companies in China to provide comprehensive payment solutions on a global scale. The company's integrated digital solutions include digital payment services and value-added services. Digital payment services mainly include collection, payment, acquiring, foreign exchange, virtual bank card and aggregate payment. Value-added services include business services and technical services, among which business services include digital marketing, operation support and drainage services; Technical services include accounts and e-wallets and software development services.
By developing and providing comprehensive solutions for merchants and enterprises in China and around the world, the company has gained deep business insights into various industries around the world. As of December 31, 2022, LianLian Digital Technology has served more than 1.8 million merchants and enterprises in various industries (including e-commerce, retail, travel, logistics, education, real estate and manufacturing, etc.), of which the total payment value of digital payment services (TPV) reached RMB1,153 billion in 2022.
According to Frost & Sullivan, among all digital payment solution providers in China, Lianlian Digital has the most extensive global business layout and license coverage, and the company is the only company that holds currency transfer licenses in all U.S. states. As of the Latest Practicable Date, the Company's global license layout (including 64 payment licenses and related qualifications) and cooperation with business partners enabled the Company to serve customers through a global payment network covering more than 100 countries and regions and supporting transactions in more than 130 currencies.
Lianlian Digital revealed that as a digital technology company, the company continues to promote business growth and solution optimization through the application of advanced technologies. The company is exploring the application of blockchain technology to further develop its business. For example, the company is preparing to submit an application for a virtual asset service provider licence to the Securities and Futures Commission of Hong Kong to set up a virtual asset trading platform in Hong Kong.
According to Lianlian Shuke, the company is committed to working closely with partners including e-commerce platforms, commercial banks, clearing institutions and third-party service providers to better serve global customers. For example, the Company has a strategic cooperation with an affiliate of American Express through a joint venture established in 2017 to Connect (Hangzhou) Technology Services Co., Ltd. According to Frost & Sullivan, China Link obtained a bank card clearing business license in June 2020, becoming the first Sino-foreign joint venture bank card clearing institution established in China. Uniconnect provides settlement, clearing and related functions for bank cards issued by Chinese card issuers with the "American Express" brand name, provides bank card clearing and settlement services for card issuers and merchant acquirers in its network, and provides cardholder rights and interests to Chinese consumers in China and around the world. As of December 31, 2022, Unicom has partnered with 21 issuers to provide cardholders with benefits in China and overseas.
Profit model and performance
As of December 31, 2022, LianLian Shuke has served more than 1.8 million merchants and enterprises from various industries including e-commerce, retail, tourism, logistics, education, real estate and manufacturing. The Company's total payment (TPV) increased by 14.3% from RMB849.4 billion in 2020 to RMB971.2 billion in 2021 and increased by 18.7% to RMB1,153.0 billion in 2022.
Relying on its global license layout, proprietary technology platform and extensive partner network, LianLian Digital has established a global payment network to provide comprehensive digital payment services and value-added services to customers around the world and China. The Company's customers mainly include merchants (who mainly conduct retail business with end buyers through e-commerce platforms) and enterprises (which mainly sell goods or provide services to end buyers (including companies and institutions)).
The company's digital payment services include collection, payment, acquiring, foreign exchange, virtual bank cards and aggregate payments. Value-added services include business services and technical services. Business services include digital marketing, operational support (such as setting up stores and arranging shipments on e-commerce platforms) and referral services. Technical services include account and e-wallet services and software development services.
For digital payment services, LianLian Shu's revenue is mainly derived from charging a service fee to customers at a certain percentage of TPV and/or charging customers a fixed service fee per transaction. In terms of the Company's value-added services, the Company's revenue is mainly derived from the collection of service fees in accordance with TPV and/or the scope of services.
It was disclosed that Lianlian Digital achieved resilient and stable growth during the reporting period. As of December 31, 2022, the cumulative number of customers served by the Company grew to approximately 1.8 million. The TPV of the Company's digital payment services increased from RMB849.4 billion in 2020 to RMB971.2 billion in 2021 and further increased to RMB1,153 billion in 2022.
Lianlian Digital's total revenue increased from RMB589 million in 2020 to RMB644 million in 2021 and further increased to RMB743 million in 2022, with a CAGR of 12.3% during the Reporting Period. In 2020, 2021 and 2022, the Company's gross profit margin was 64.3%, 68.2% and 62.7% respectively.
Lianlian Shuke pointed out that during the reporting period, Lianlian Shuke's business achieved strong growth, but it was still in a loss-making state. In 2020, 2021 and 2022, Lianlian Digital Division recorded net losses of RMB369 million, RMB7.49 and RMB917 million, respectively, the Company's EBITDA (non-IFRS measures) of RMB14.7 million, RMB-39.2 million and RMB-69.7 million, respectively, while the Company's adjusted EBITDA (non-IFRS measures) were RMB123 million and RMB123 million, respectively. RMB 26 million and -17.4 million yuan.
Lianlian Digital's customers mainly include cross-border merchants and enterprises in China, overseas merchants and enterprises, and domestic enterprises. For the years ended December 31, 2020, 2021 and 2022, the total revenue generated by the top five customers of the Company for the reporting period was RMB61.1 million, RMB70.8 million and RMB60.2 million, respectively, accounting for 10.4%, 11.0% and 8.1% of the Company's total revenue. During the same period, revenue from the largest customers was RMB26.0 million, RMB36.7 million and RMB17.5 million, accounting for 4.4%, 5.7% and 2.4% of the Company's total revenue, respectively.
The suppliers of Lianlian Shuke mainly include commercial banks, clearing institutions (which charge fees from the company) and channel partners (which charge agency service fees to the company). For the years ended 31 December 2020, 2021 and 2022, the total procurement value of the Company's procurement from the five major suppliers in each year of the Reporting Period was RMB106 million, RMB115 million and RMB122 million, accounting for 62.8%, 68.6% and 53.0% of the Company's total procurement value respectively. During the same period, the procurement amount from the Company's largest suppliers was RMB28.8 million, RMB38 million and RMB44.9 million, accounting for 17.1%, 22.7% and 19.5% of the Company's total procurement value, respectively.
Gross profit refers to revenue minus costs. In 2020, 2021 and 2022, the Company's gross profit was RMB378 million, RMB439 million and RMB466 million, respectively. The increase in gross profit during the period was primarily due to the Company's overall business scale growth and revenue drivers. Gross margin refers to gross profit as a percentage of revenue. In 2020, 2021 and 2022, the Company's gross profit margin was 64.3%, 68.2% and 62.7% respectively.
The Company also bears the net loss of associated companies on an equity basis, reflecting the loss borne by Lianlian Shu in Lianshu in Liantong. In 2020, 2021 and 2022, the Company incurred net losses of associated companies on an equity basis of RMB329 million, RMB687 million and RMB805 million, accounting for 89.1%, 92.0% and 87.8% of the Company's net loss for each year, respectively.
Under the combined influence of the above factors, the company's net loss in 2020, 2021 and 2022 was RMB369 million, RMB747 million and RMB917 million respectively.
Lianlian Shuke said that the company plans to achieve profitability in the following ways: first, relying on the advantages of strategic layout, continue to create value for customers, and then promote the growth of revenue scale; The second is to maintain a stable and high gross profit level through effective cost control and a healthy business model; The third is to give full play to the synergy effect of product, technology and license layout, and continue to reduce the marginal investment in the development and expansion of new products and new businesses; and the fourth is to evaluate connected business operations to enhance the economic efficiency of shareholders.
As of December 31, 2020, 2021 and 2022, Lianlian Digital's cash and cash equivalents were RMB1.3 billion, RMB872 million and RMB146 million, respectively. As of December 31, 2020, 2021 and 2022, the Company's client funds and restricted cash were RMB6,635 million, RMB6,471 million and RMB8,757 million, respectively. During the Reporting Period, client funds and restricted cash constituted the majority of the Company's assets, accounting for 71.9%, 76.3% and 86.3% of the Company's total assets as at 31 December 2020, 2021 and 2022 respectively.
Shareholder exposure: Zhang Zhengyu and other 3 people actually control 38.91% of the shares
As at the Latest Practicable Date, Zhang Zhengyu, Lui Zhonglin and Xiao Seqiu, executive directors and chairman of the board of directors of Lianlian Shuke, jointly own approximately 38.91% of the total issued share capital of the Company, and have entered into a concerted action agreement in 2021, and the three are the controlling shareholders of Lianlian Shu. Among them, Zhang Zhengyu is regarded as the ultimate controller of the company, holding a total of 28.54% of the company's equity.
The prospectus also disclosed that a number of well-known investment institutions appeared on the list of shareholders. Among them, Everbright Investment holds 7.88%, Boyu Jingtai holds 6%, and Sequoia Zhensheng holds 5.26%.
In addition, Xingzhu Investment, Nuoheng Investment, Yousong Investment and Huilian Consulting are the current employee incentive platforms of Lianlian Digital, with a cumulative shareholding equity of 6.96%.