Key takeaway

The company released its 1H26 results. In 1H26, total operating revenue reached RMB5.637bn, up 40.24% YoY; net profit attributable to shareholders of the parent company was RMB690mn, up 15.85% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB584mn, down 2.57% YoY. In 2Q26, revenue, net profit attributable to shareholders of the parent company, and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses increased by 45.91%, 43.72%, and 13.29% YoY, respectively, indicating a clear improvement in operating trends. Overseas sales of smart terminals maintained rapid growth, while payment transaction volume rose by more than 46% YoY; the global licensing footprint continued to expand, and the payment large language model and the “Luban” intelligent agent have initially formed a closed commercial loop, supporting expectations for higher penetration of value-added services going forward. The company secured memory chip inventories and purchase prices in advance, which temporarily disrupted operating cash flow but helped ensure stable order fulfillment and strengthen cost control. Profitability is expected to recover gradually as raw material cost pressures ease. We maintain our “Buy” rating.

Event

On August 25, the company released its 1H26 results. In 1H26, total operating revenue reached RMB5.637bn, up 40.24% YoY; net profit attributable to shareholders of the parent company was RMB690mn, up 15.85% YoY; and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB584mn, down 2.57% YoY.

Quick Take

The company maintained rapid revenue growth, while its 2Q profit beat consensus. In 1H26, the company’s total operating revenue increased by 40.24% YoY, net profit attributable to shareholders of the parent company rose by 15.85% YoY, and net profit attributable to shareholders of the parent company excluding nonrecurring gains and losses declined by 2.57% YoY; in 2Q26, total operating revenue reached RMB3.098bn, up 45.91% YoY, net profit attributable to shareholders of the parent company was RMB409mn, up 43.72% YoY, and net profit attributable to shareholders of the parent company excluding non-recurring gains and losses was RMB296mn, up 13.29% YoY, returning to double-digit growth. The difference in growth between net profit attributable to shareholders of the parent company and the corresponding profit excluding non-recurring gains and losses was mainly due to fair value gains on financial assets held, with net non-recurring gains and losses of approximately RMB106mn in 1H26. Net cash flow from operating activities was RMB-1.058bn, mainly because the company increased procurement payments to secure memory chip inventories and prices in advance.

The smart terminal business achieved rapid growth through overseas market expansion, while higher memory chip prices temporarily weighed on profitability. In 1H26, the smart terminal cluster generated total operating revenue of RMB3.085bn, up 62.50% YoY, including a YoY increase of over 75% in revenue from digital payment terminals; the company sold more than 4.5mn terminals of various types, including over 2mn smart POS terminals. Overseas business revenue accounted for nearly 85% of the smart terminal cluster's revenue, with shipment volume and revenue in Europe and the Americas both rising 80% YoY and revenue in Latin America increasing nearly 120% YoY. The company's overseas revenue reached RMB2.608bn in 1H26, up 79.29% YoY, with its share of total revenue increasing from 36.19% to 46.27%. Higher memory chip prices reduced gross profit from key products by more than RMB250mn and lowered gross margin by approximately 8 pcts, while the gross margin of the smart terminal cluster fell 4.08 pcts YoY to 30.00%. Supply chain costs caused a short-term disruption to the company's profit, while its global distribution channels, local operations, and supply chain management capabilities continued to drive gains in terminal market share. Meanwhile, the company locked in memory chip inventory and prices in advance, with the benefits gradually becoming evident. If chip prices and the product mix improve going forward, the terminal business is expected to gradually unlock its profit upside.

Payment transaction volume grew significantly, while market share and merchant quality improved. In 1H26, the company's payment transaction service volume exceeded RMB1.5tn, up more than 46% YoY, including YoY growth of over 150% in the number of QR code payment transactions, over 70% in QR code payment value, and nearly 70% in transaction value from merchants with monthly transaction volume above RMB500,000. The company partnered with more than 340 banks, with joint acquiring transaction volume exceeding RMB75bn, up nearly 70% YoY and accounting for approximately 50% of total transaction volume. During the same period, revenue from merchant operations and value-added services was RMB1.987bn, up 22.74% YoY. As the company continued to optimize its merchant mix and deepen ecosystem partnerships, the scale barriers and overall competitiveness of its acquiring business strengthened further.

The global licensing network continued to expand, and cross-border payments are expected to become the payment business's second growth engine. The company has obtained a U.S. MSB registration and a Hong Kong MSO license and acquired relevant payment licenses in Singapore and Malaysia through its investment in Debia, extending its licensing network from domestic acquiring to overseas acquiring, crossborder transfers, and international remittances. As of June 2026, Debia supported more than 35 payment methods and had served over 1,000 overseas merchants across sectors including food and beverage, retail, education, healthcare, and medical aesthetics. The company has established strong customer, channel, and local service foundations in the global payment terminal market. It is expected to combine its merchant operations, SaaS, and AI capabilities accumulated in China with its licensed overseas clearing and settlement capabilities, upgrading its business model from terminal sales to “terminals + acquiring + digital services.”

Preliminary charging models have been established at both the AI model and application layers, while the company’s vast merchant base and payment transaction volume provide a differentiated foundation for deployment. In 1H26, the company provided operational and fintech services to more than 6.7mn active merchants and generated value-added service revenue of RMB525mn, including RMB355mn from operational value-added services. At the model layer, the company has jointly developed a payment-specific large model with Alibaba Cloud. Peak daily token calls exceeded 35bn in 1H26, representing large-scale production use among vertical financial models. The company has also established three charging models: SaaS subscriptions, private deployment, and customized development. At the application layer, the company launched the merchant-facing “Luban” AI agent at the end of May. It has been rolled out to and integrated with hundreds of thousands of merchants, covering high-frequency scenarios such as daily operating reports, revenue analysis, inventory checks, employee management, and marketing content generation. The company plans to expand it to millions of active merchants in China and launch an overseas version. “Luban” plans to adopt standardized pricing based on “computing unit” token packages. The company is expanding from charging for model calls to charging for merchant operational value-added services, and its AI commercialization path is becoming increasingly clear.

Investment recommendation: The company delivered strong revenue growth in 1H26 and robust profit in 2Q26. The globalization of smart terminals and gains in payment transaction share underpin its core business, while overseas licenses and AI-powered merchant services are expected to unlock medium- to long-term growth potential. The company secured memory chip inventory and purchase prices in advance, whic h disrupted operating cash flow in the short term. However, this will help ensure stable order fulfillment and strengthen cost control. Profitability is expected to gradually recover as raw material cost pressures ease. Considering higher upstream raw material prices and the company’s continued gains in market concentration, we have revised our full-year performance forecasts. We previously forecast the company’s operating revenue at RMB11.574bn, RMB13.421bn, and RMB14.961bn for 2026–2028, respectively, with net profit attributable to shareholders of the parent company at RMB1.138bn, RMB1.443bn, and RMB1.742bn, respectively. Following the adjustments, the company is expected to generate operating revenue of RMB12.002bn, RMB13.913bn, and RMB15.502bn in 2026–2028, respectively, and net profit attributable to shareholders of the parent company of RMB1.041bn, RMB1.384bn, and RMB1.710bn, respectively, implying PE multiples of 19.05x, 14.32x, and 11.59x. We maintain our “Buy” rating.

Risks

(1) Risk of rising smart terminal costs. Growing demand for AI computing power may keep memory chips and related raw materials in tight supply. If the company cannot absorb the higher costs through procurement management, product price increases, or product mix upgrades, the gross margin and profit contribution of smart terminals may remain under pressure.

(2) Risk of a declining monetization rate in the merchant acquiring business. A rising share of bank-cooperative merchant acquiring, QR code payments, and large merchants may continue to dilute revenue per unit of payment volume. If growth in value-added services cannot offset pressure from fee rates and channel revenue sharing, strong growth in payment volume may not translate effectively into gross profit and net profit.

(3) Risk associated with overseas market expansion. The company’s overseas terminal expansion and crossborder payment business are exposed to differences in political and economic conditions, legal systems, payment regulations, data compliance requirements, and exchange rate movements across countries and regions. Obtaining licenses does not necessarily lead to business growth, and progress in overseas merchant acquiring may fall short of expectations.

(4) Risk of weaker-than-expected commercialization of AI products. The “Luban” AI agent remains in the early stages of promotion and commercialization. Merchant usage frequency, willingness to pay, and unit economics require further validation. If AI usage costs remain high or the product fails to effectively improve merchants’ operating efficiency, its revenue and profit contribution may fall short of expectations.

(5) Risks from industry competition and regulatory policies. Competition is intense in the third-party payment, fintech, and digital business services markets, while payment institutions face increasingly stringent requirements for anti-money laundering, merchant management, and data security. Changes in regulatory rules or higher compliance costs for the company may affect business expansion and profitability