Yeahka Limited (9923) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for joining the call today. Welcome to Yeahka Limited 2022 Annual Results Announcement Call. [Operator Instructions] Please be advised for today's conference is being recorded. I'll now pass the call to Mr. Ben Zhao, both Secretary and General Manager of Corporate Development for the company. Thank you. Ben, please go ahead.

Hello, everyone, and welcome to Yeahka's 2022 Annual Results Conference Call. Before we start, we would like to remind you that this presentation includes forward-looking statements that involve risks and uncertainties. Information on general market conditions come from a variety of sources outside of Yeahka. Now let me introduce the management team on today's call. First, Luke Liu, our Founder, Chairman and Chief Executive Officer, will kick off with an overview of our business. I will then go through our business review. John Yao, Chief Financial Officer, will conclude with the financial review before we open up the floor for questions. Derek Lai, our Director of Finance, will translate for John. I will now turn the call over to Luke.

Thank you, Ben. Good evening, and good morning, everyone. 2022 was an unusual year for all of us. Nevertheless, our 3 business segments, payment, in-store e-commerce and merchant solutions will continue to grow at a healthy rate and deliver strong financial results, thanks to our broad geographic coverage and the strong synergies within our commercial digitalized ecosystem. Notably, our payment business saw an increase of both, GPV and the fee rate. And our in-store e-commerce business contributed significant revenue in the gross profit, and while drastically reducing its loss on a monthly basis. As China shifted its focus to economic growth and consumption recover in 2023, we're able to grow our business further in both, operational and financial terms. Now I will share some details on the progress we made in 2022. In the payment business, we managed to navigate to [ tough macro clientele. ] Both our payment GPV and the fee rate increased, demonstrating strong resilience and revenue once again reached a historical high. We also continue to diversify our channel strategies. We expanded our joint and merger acquiring service with 115 banks and launched the DCP pilot programs covering a broad range of people's daily offline consumption activity. Our payment platform is becoming inclusive and robust. And we have begun to upgrade our clientele strategy to include mid- to large-size customers and vertical leaders. Last year, we maintained our leading position in the QR code payment industry and made [indiscernible] tools in both, GPV and the number of transactions. As promised, we successfully monetized our leading market position by gradually increasing our fee rate to make up what was lost in 2021 when we pursued more aggressive pricing strategy for growth. In-store e-commerce continued to be our fastest growing segments. Serving as a valuable extension of our payment business, we believe we have a great opportunity to deepen our relationships with merchants by driving traffic to them through our various partners such as Douyin and Kuaishou, WeChat. And we grew our GPV 7x over in 2022, speaking to our firm profitability mindset. In the second half of 2022, we optimized our off-line BD organizational structure, operations and the technology to improve efficiency, [ never ] reaching our large-scale merchant acquisition, leading market recognition as well as smart content creation capabilities labeled by AIGC technologies. We took the first steps to forging on competitive edge in this. We also deployed multi-layer market strategies, including self-operated sites and co-operated sites that help us to reduce our BD costs while expanding our geographic coverage. Jointly with our partners, we have created a merchant service network and shares merchant resources provided Yeahka's digital tools, including KOL matching, live streaming platform and cross-sell additional solutions such as payments and SaaS offering. Despite COVID, we continue to expand our merchant solutions model in 2022. For example, by integrating delivery capabilities, we offer the standardized intuitive offering in conjunction with our payment interface, allowing merchants to self register at a low cost. Thus, we believe this business has a great opportunity to rebound in 2023 as merchant get back to their feet. We will keep engaging merchants to increase their stickiness and willingness to pay. And we'll gradually scale down our discount fee policy. Today, our scalable ecosystem has shown its ability to create a virtuous cycle among the payment in-store e-commerce and Merchant Solutions segments. The merchant base and the consumer insights we accumulated over the years directly lead to the prosperity of our Merchant Solutions and in-store e-commerce business and the internal enhanced loyalty and stickiness in our payments business, sometimes even bringing new merchants to the payment business. Because of our strategic direction, we have a healthy and sustainable business that will endure for a long time. While monetizing China's offline consumption recovery, we are simultaneously seeking to expand overseas, grow alongside our merchants and capitalize on our domestic market know-how and our agility in diving to new markets. In 2023, we'll continue to focus on creating value for our merchants and providing a wide range of local lifestyle experience to consumers and create sustainable value for shareholders, employees and the society at large. I'll now hand over to Ben who will provide a detailed business review. Thank you.

Thank you, Luke. Good evening, and good morning, everyone. I will now provide more color on the development of our 3 business lines. First on payments, the cornerstone of our ecosystem. We operate in more than 300 cities with low geographic concentration, and this helped us manage the regional impact of coronavirus. We increased the number of active payment merchants to 8.1 million and daily transactions to over 50 million, both record high numbers. Solid partnerships and innovation also drove our business growth. During the year, we collaborated with 115 partner banks in our joint merchant acquiring partnership to further reduce our customer acquisition costs and increase our merchant retention rate. Our base of 18,000 ISOs provided us with greater-than-ever merchant outreach and service capabilities. Our cloud payment platform through API has established partnerships with over 3,000 software partners in various industry verticals, such as food and beverage, gas stations and karaoke, et cetera. This scalable and highly compatible payment infrastructure can significantly lower R&D costs and increased payment connection efficiency by allowing our software partners to customize solutions such as accounts [ trading, ] bill payment, payment custody, et cetera. For us, it represents the most effective way to expand our payment customer coverages into mid- to large-sized [indiscernible] customers and vertical brand leaders who can also enjoy the full array of our in-store e-commerce and merchant solutions services. In 2022, our GPV grew over 5% year-on-year to RMB 2.2 trillion. Out of this, GPV grew 21% year-on-year, accounting for about 70% of the total GPV, up from about 61% in 2021. Our payment revenue increased over 21% to more than RMB 3.75 billion in 2022. Additionally, we have successfully leveraged our leading market position to monetize, which validates our decision to prioritize scale expansion and execute a discounted market strategy in 2021. Our overall fee rate increased to 12.3 basis points in 2022 from 10.7 points to last year. As the fee rate increase at a faster pace in the second half of 2022, we gave more short-term incentives to our channel networks to ensure a speedy adoption of the fee increase strategy and continued growth in the number of merchants. And we will gradually reduce these incentives in the long run. In addition, we actively participated in the planning and design of GPV and partnered with commercial banks to launch pilot programs in more scenarios covering transportation, catering and accommodation, shopping and consumption, tools and sightseeing, et cetera. In addition, we actively sought out opportunities in overseas market and obtain relevant payment licenses in Singapore, Hong Kong and the U.S. I would also like to share that we have already seen benefits from China's early stage economic recovery in the first 2 months of this year. The total GPV in January and February of 2023 grew 9.8% and 34.1% year-on-year, respectively. Given the rapid recovery in offline consumption, we estimate that our full year GPV will be between RMB 2.7 trillion and RMB 2.9 trillion. Now let's move on to our inflow e-commerce services. This business made significant process in 2022 and was very close to breakeven, thanks to our unique positioning and effective operating strategy. Our total GMV increased more than 7x to RMB 3.3 billion, and our revenue increased 139% to over RMB 354 million in 2022. At the same time, the net loss of our in-store e-commerce business significantly narrowed to RMB 51.9 million in the second half of 2022, but decrease of 67.4% from the first half of 2022. In-store e-commerce is RMB 1 trillion market opportunity, and with more players entering the space seeing the massive opportunity, we have evolved our marketing strategy with a firm focus on profitability. Notably, we're shifting from a fully self-operated model in which we incurred all the BD costs to a co-op city model, which enables partners in various verticals and regional merchants to leverage our brand name and our strong technology in powered services such as KOL outmatching, live streaming optimization and ad deployment. We also made certain investments to further strengthen our relationships. This self-operated plus the co-op strategy will enable us to expand our geographic coverage at a controllable cost, particularly in the lower-tier cities where it is less efficient for us to deploy direct sales staff. As a result, we downsized our off-line BD team from 1,500 to nearly 1,000 and are placing a greater emphasis on technology empowerment and operating efficiency for our BD team. aiming to maintain our leading GMV growth and reduce marginal costs. Our strong bargaining power is driven by our scale, and respective brands has enabled us to lower commissions paid to KOLs. And as a result, our gross profit margin increased from 57% in the first half to 75% in the second half. Going forward, given the evolving competitive landscape and macro environment, we'll continue to emphasize profitability and leverage our growing technology capabilities and the power of our commercial digitalized ecosystem to form stronger strategic alliances with the merchants, local partners and mainstream media platforms such as Douyin. Finally, an update on Merchant Solutions. Our short- to medium-term strategy for this business is to grow our merchant base. One of the major features of our product is that it's simple user experience, so merchants can easily use it without prior training. Our extremely low customer acquisition costs allow us to serve merchants with lower fees and more effectively encourage the adoption of digitalized solutions. Heading into 2023, we'll continue to increase the number of merchants through product innovation. I'm also very pleased to announce that we obtained excellent results on ESG ratings, scoring an industry-leading 48 on the S&P Global ESG rating and received an A- on the Hang Seng Corporate Sustainability Index. This performance underlines our company's strong dedication to being environmental conscious, giving back to society and emphasizing sound corporate governance. And I believe it lays a solid foundation for our sustainable and resilient business model. Thank you, everyone. With that, I will now pass over to John, our CFO, to go through our financial results. our Director of Finance, Derek will provide the translation.

[Foreign Language]

[Interpreted] Thank you, Ben. Now let me briefly go through the highlights of our financial results for this year.

[Foreign Language]

[Interpreted] Our total revenue reached RMB 3,400 million in 2022 from RMB 3,059 million in 2021, representing a year-on-year increase of 11.8%.

[Foreign Language]

[Interpreted] The increase was mainly attributable to our one-stop payment services and the rapid growth in our in-store e-commerce services.

[Foreign Language]

[Interpreted] Gross profit increased 26.6% year-on-year from RMB 810 million in 2021 to RMB 1,013 million in 2022.

[Foreign Language]

[Interpreted] Of which, gross profit of one-stop payment services accounted for 51.6% and increased to RMB 532 million in 2022 from RMB 380 million, a year-on-year growth of 40.3%.

[Foreign Language]

[Interpreted] Gross profit margin expanded from 26.6% to 30.2%, of which gross profit margin of one-stop payment services improved from 16.7% to 19.3%. And gross profit margin of in-store e-commerce services improved substantially from 35.9% to 67.3%.

[Foreign Language]

[Interpreted] Our research and development expenses increased by 12.4% from RMB 240 million in 2021 to RMB 270 million in 2022, primarily due to our increased investment in system upgrades and product development.

[Foreign Language]

[Interpreted] Our adjusted EBITDA increased 73% year-on-year to RMB 230 million in 2022 from RMB 123 million in 2021.

[Foreign Language]

[Interpreted] Of which, adjusted EBITDA in the second half reached nearly RMB 144 million compared to RMB 70 million in the first half, representing significant half-on-half growth of 106%.

[Foreign Language]

[Interpreted] The half-on-half improvement of adjusted EBITDA was mainly due to the sharp half-on-half reduction in the net loss of in-store e-commerce from nearly RMB 150 million in the first half to less than RMB 52 million in the second half.

[Foreign Language]

[Interpreted] Which reflects the scaling effect and our enhanced operating efficiency.

[Foreign Language]

[Interpreted] In the future, we will continue to pursue the healthy growth of our 3 major business.

Thank you, everyone. That's it for our prepared remarks. We will now open the call to questions. Operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Vicky Wei from Citi.

[Interpreted] So Yeahka shared that the year-over-year growth of GPV in January and February this year increased by 10% and 34% year-on-year. Will management share more color about the off-line consumption recovery trend, for example, by regions and by merchant categories? What is the latest off-line consumption trend in March as compared to February? And how should we think of the payment gross margin in 2023? My second question is related to the in-store business. What is management's view on the completion landscape in the Douyin ecosystem and Yeahka's market share outlook? How should we think of the balance between growth and profitability?

Thanks a lot for the questions, Vicky. Let me address the first question first. So as you pointed out, our January and February numbers on the payment GPV is quite significant. And we saw the Tier 1 cities, particularly around the coastal areas has shown a significant increase or recovery from the COVID. And in terms of industry, I think the core sectors that we operate in or we serve, the retail and the restaurant sector are seeing pretty good growth or recovery from the COVID. And in terms of March, since we are quite confident in the full year numbers, and we have already provided a full year guidance for this sector, which is RMB 2.7 trillion to RMB 2.9 trillion in GPV. And in March, we do see a similar recovery trend, very similar to what we see in February and January. And in terms of the gross margin profile. So if you look at the numbers in the second half, the payment gross margins has shown slightly decreased from the first half, and that's mainly because we have increased our fee rates quite significantly in the second half of the year from 13 -- for the [indiscernible] payments, it's from 13.5 basis points in the first half to 14.2 basis points. And in order to achieve that fee rate increase or monetization, we gave some short-term incentives to our channel network, and that's a short-term incentive, which means as our scale increases, we are able to reduce that incentives or the revenue sharing percentages to the channel networks, so that our gross margin profile can be more stable in this year, in 2023. So let me pause there to see if you have any questions on the first one. Sure. And on the second question, which is quite a key question for the in-store e-commerce. So in terms of the competitive landscape, it is a quite complex industry in terms of the local lifestyle services. So if you break down the scale of the merchants, it's actually quite a few categories from [ SKA ] the large chain stores to [ CKA, ] to shopping district to complex, so there are many different verticals involved as well. So even within the in-store dining sector, we have the fast food to fine dining to desert to the beverage services. And within the comprehensive in-store services, we have the beauty, fitness, [indiscernible], photograph, movie, health care, et cetera. And for the hotel and travel, we have things like sightseeing, transportation, travel packages, et cetera. So it is a very, very complex sector, and it is a large sector with the trillions of renminbi massive market size. So it is no surprise that more players with local merchant resources or expertise in some verticals, they're entering the space, seeing the massive opportunity. With the recommendation focused model, obviously, we see on the new media platforms such as on Douyin and Kuaishou, et cetera. So for us, our strategy to counter that is we have now 2 models to serve different cities. So for Tier 1 cities or the large cities, we are doing a self-operated model in which we are more efficient. So we reduced the business development staff, which we pay salaries to, from the highest it was 3,000 people to less than 1,000 business development professional, and we target approximately 50 large tier cities. And for the lower-tier cities, we utilize what is called a co-op model, which we then expand the geographic outreach at a controllable cost. So the core idea of the co-op model is we take advantage of exactly these small players who have local merchant resources, or they have some expertise in some specific industry verticals. And what we can do is these small players, they can leverage our brand name and our technology in power middle office to do better businesses or to do better merchant services. So we provide what is called the technology in power middle office services or solutions to these small teams in different cities that we operate a co-op model. Things like the KOL matching services, the live streaming optimization services, ad deployment services. So jointly, with the self-operating and co-op model, we jointly formed a merchant service network that are really self-reinforcing, right? Because these small players, they have some merchant resources that they cannot serve and they can -- and for us, we can pick this up, and we can serve them ourselves. And we also have some merchant resources or some specific industry verticals that we don't have an expertise in, so we can pass it on to our core partners for them to do a better service offer. And also within this merchant service network, we can also do a lot of cross-selling. So for Yeahka, we have the payment business, we have the SaaS business, and for our direct self-operated sites or for our core model sites, they can cross-sell all of our merchant service solutions and to jointly form a deeper relationship with the off-line merchants that we serve. And together, we can work with the mainstream media such as Douyin to offer a better customer experience. And in last year, we have actually completed 37 million orders out of 400,000 SKUs. And these are all pretty tremendous numbers given the COVID situation. And in terms of the market share, I think given the more effective and more comprehensive marketing strategy, we do think the market share for our lifestyle localized services is going to be greater and increasing for the year 2023. And as Luke has mentioned, for this sector, we are focusing -- we are putting a firm emphasis on profitability. So essentially, we are -- if you look at the second half numbers, our net loss for this business is significantly narrowed. And as we have also announced in a separate notice, our currently monthly net loss or the cost expenses incurred in this business is very, very close to breakeven. And we are fully confident that very soon, we should be able to achieve breakeven and sooner the profit being more profitable for the in-store e-commerce business.

Our next question comes from the line of Leon Qi from Daiwa.

[Foreign Language] Two questions from me today. Firstly, on a very hot topic recently on AI, I do notice that in our presentation, we mentioned that we've already developed more than 10 functions based on AIGC, AI-generated content under our Merchant Solutions business. So if [indiscernible] appreciate management share with us on some specific applications of AIGC in this segment of business and how we monetize these tools. Now the second question is regarding payment. You noticed our very good trend in terms of payment take rate and GP margin last year. Just wondering if management could share with us some color in terms of the competitive landscape for payment business in 2023.

Sure. So Luke will answer the first question on AIGC, and I'll address the second one.

Okay. So we build our AI lab almost 3 years ago. So we follow up all the new AI technology. I mean, when it be invented and when the industry began to use it. So, for the AIGC technology, we, I mean, pay a lot of attention on it as well. We already do 3 kind of application in this area. Number one is we create short video content with AI in our in-store e-commerce business. Our in-store e-commerce business covered more than 30 cities in China. And we have a big sales team, and they need to go to the restaurant to make a video. Now they have -- by the new AIGC technology, they can use our tour, which is invented by us -- programmed by us, they can complete the work much easier, and it can improve their efficiency, maybe by 30%. So this is the first, I mean, example that we use new technology. The second one is we -- our [indiscernible] in -- the operation team, they can use the AIGC technology to create -- I mean, generate the article or description of restaurant or package ultimately. Previously, we have more than 100 employees in this team. Now by the AI technology, we only need 10 or 15 to finish the task. And the second -- the third way we use the AIGC technology is not only for the in-store e-commerce business, but for all of our business unit. We have some pilot program to finish the customer service in our call center. They use some, I mean, NLP technology and some, I mean, TTS technology to answer customers' questions and online. I mean, we have some call center robot that can help our consumers for our merchants to complete their -- to satisfy their request and answer that question and solve their problems. And we will keep on going in this area and try to use the new AI to one learn more on the business.

So thanks, Luke. So the AIGC is all about source data and algos. We do have the in-house AI lab to integrate the variety of sources that we can accumulate within our ecosystem, such as the payment. We are focusing on the QR code payment, which is extremely high frequency. The daily peak number of transactions has reached 50 million. So all of that contains a lot of customer insights. And in addition to that, we also have the in-store e-commerce, which we have accumulated 37 million orders, and that 37 million orders we can get a lot of insights into the consumer conferences in which we can generate our content with the AI algos more effectively. So just to add a few points. In terms of the second question on the payment. So the competitive landscape, as everyone can see that, the off-line consumption is recovering after the COVID. And we have actually taken a very aggressive marketing approach in 2021 if you look at the fee rate trend. So in back in 2020, our fee rate at that time was 12.5 basis points. And in 2021, we reduced that proactively to 10.7 basis points. And the result of that more aggressive market approach is we have increased our payment GPV from about RMB 1.5 trillion to RMB 2.1 trillion in 2021. So that gave us a lot of scale and market pricing power given our leading position on the QR code payment, we are now capturing more than 30% of the market share on QR code according to a variety of industry sources. And with that pricing power going into 2022, if you look at our fee rate trend, we have gradually increased and in fact, increased it back to where we were, in 2020 to 12.3 basis points, and out of which our ad base fee rate has increased to 13.9 basis points in last year 2022. So that's really us taking the opportunity with the leading market position and the pricing power to monetize at the current more consolidated industry landscape. And going forward, I think if you look at the GPV growth or recovery, we are seeing strong GPV growth in January and February. And in fact, our fee rates is continuing to increase at a gradual pace in 2023. That should ensure us with a pretty comfortable position in terms of our profitability within the payment business. And of course, in the beginning, as we increased the fee rate at the very beginning, we do need to get more incentives to the channel network partners, but that will also gradually phase out in 2023.

Our next question comes from the line of [indiscernible] from Final Link.

[Foreign Language] Congratulations on a very strong fiscal result along with a very strong GPV guidance and the company remaining at very strong upward trend. So my question is we see Douyin pushing their delivery services, and I want to ask the company if we will have synergies Douyin's delivery service in the future.

Right. So thanks a lot for your question. So a very keen observation on the delivery strategy that is being pushed very hard by Douyin this year. I think for us, we do think it's -- we do take a pretty favorable approach or attitude toward Douyin's potential success in the delivery services, because they've been pretty successful in developing that user habit in the in-store business, and it's just a natural extension from in-store to delivery services as long as they have the infrastructure ready, which we can really be helpful on that. And in fact, last year, started since 2022, with our SaaS modules, we already have the integrated delivery solutions offered to merchants. So we have already integrated the delivery capabilities from Shandong [indiscernible], [indiscernible] from [indiscernible] from a couple of other delivery service providers. And for us, over on the supply chain side, we have the merchant relationships, so that for our partnership with Douyin, we can achieve pretty good synergies on the delivery side, because we can also work with our merchant base to help promote their delivery solutions with various types of content, such as short videos or live streaming. And in addition to just the supply chain or the SKUs, we can also -- we already have that integrated delivery solution that can also be integrated into the Douyin's platform. So we do think it's a great opportunity. So we are looking forward to working closely with Douyin on this effort.

Our next question comes from the line of Thomas Chong from Jefferies.

My first question is regarding the install business. I think just now management talked about the payment trend in January and February and also the full year outlook. I just wanted to get some color with regard to our installed GMV on a monthly basis. Can you comment about how is the momentum in -- from January to March, if any color on that front and also our full year outlook? And my second question is on the DCP, the digital currency update? And any thoughts about the future monetization models. [Foreign Language]

Yes. Thanks for your question, Thomas. So on the in-store business, as the consumption gradually picks up in January and February, so is our in-store e-commerce business. So we don't actually provide a monthly update on the GMV for the in-store business. But what I can tell you is we take a very firm approach on achieving breakeven very soon and put a core emphasis on profitability. And that is also why since the end of last year, actually, we have gradually changed our operating model from all of our 300 sites being self-operated with over 3 -- over 1,500 sales staff to a co-op model, which we actually take advantage of the more competitive landscape in the local lifestyle service sector, as we can see today. And for the full year numbers, in fact, we -- what we can share is with the breakeven mindset in mind, we are very close to that, and we'll provide more color on the full year numbers to the market at a later date. But one thing for sure is we are -- we have a very strong relationship with merchants and with our local partners and with the mainstream media such as Douyin, and that basically means that with the self-operated and co-op model, we can actually expand the geographic outreach at a more controllable cost. And our merchant relationships coming out of the payment business can even be strengthened with the developments of the in-store e-commerce and plus the delivery services that is yet to come. Sorry, just to add on Thomas' second question on the DCP. So it is still in a pilot stage, and we are obviously working very closely on the front line with commercial bank with a major -- actually 4 commercial banks. And so far, there is no clear monetization opportunities across the industry. But obviously, with a massive merchant base that we have and with technology structure that we have codeveloped with the commercial banks, we do think when time comes, we should be the first to monetize, just that's what we can see in the payment business today.

We'll take our next question from the line of [indiscernible] from CICC.

[Foreign Language] About in-store e-commerce business, were you probably with more online platforms in 2023? And if so, what's the potential impact on monetization rate?

Yes, absolutely. So we -- the current traffic model that we have is a couple of resources. So Douyin is obviously one of the major ones. And we also have our own WeChat mini program. And we also have started our cooperation with Kuaishou with the shipping [indiscernible] and with a couple of other the new sort of the new media efforts. Because all these new media platforms, they take a similar approach in their customer service strategies, which is recommendation focused and in which we can leverage our content creation capabilities and our KOL matching and also the live streaming optimization capabilities to be very helpful for the merchant to acquire traffic within these traffic. And in terms of the take rates, as you can see in last year, our take rate was a little bit higher than 10%. We -- for this year, obviously, the take rate, it will be more stable. And as we increase our partnership or expand our partnership with more traffic platforms, we do think there's an opportunity to improve that take rate, because whenever there's a new platform that's upcoming, they will provide more and better policies for the traffic. And the gross margin profile, obviously, as you can see, is also improving. And the expenses as the scale increases, we should be able to see more economies of scale on the sales and marketing and obviously on the G&A and R&D expenses. So we do think the monetization for the in-store business for this year, it will gradually pick up as we expand our partnerships and as we achieve more scale with the co-op model.

Our next question comes from the line of Linlin Yang from Guangfa.

[Foreign Language] Okay. I will translate myself. My first question is about the payments business. You estimate payment. GPV will be between RMB 2.7 trillion and RMB 2.9 trillion in 2023. So what's the driver numbers of merchants or GPV per merchant, how to expect future growth? My second question is about in-store e-commerce business. So considering the competition between the Douyin and [indiscernible], will it affect our take rates and profits?

Thanks a lot for your questions. Let me address the first one first. So we have actually provided more guidance on the payment this year, given that we see strong growth in January and February. And that can be contributed to 2 different drivers. So the first driver can be attributed to, as we have mentioned that in the annual report, the -- our joint merchant acquiring services with the banks has proven to be very successful. So we are now partnering with [ 108 and 15 ] banks as of today. And these banks, they all have or branches, and they all have the merchants that they already serve. And they are also looking for more account openings by serving more merchants offline. But the problem is they don't have a strong on-the-ground team to help them to achieve that. So the outcome is we partner with the banks so that every time we go out and we acquire a new merchant, we can help the bank to open up a bank account, so that the merchant deposits can be found or can be transferred to that particular partnered bank. And in return, the bank's existing merchant base can be then transferred to us for our payment services. So that's one very successful new channel strategy that we employed since last year and up to this year, it's another -- it's going to be another very key driver by working with the banks. And secondly, the -- in terms of the SaaS partners that we work with. So there are many SaaS software providers that serve the middle to large-sized merchants or the chain stores or chain restaurants, which is not our typical customer base before. And since last year, we have actually introduced our payment or our open API payment infrastructure and we work with the [indiscernible] software partners, and we provide payment connectivity to these SaaS providers, so that we can penetrate into the middle to large-sized [ KA ] customers. So to your question, I think the way we achieved high growth in the GPV is really for one, with a more comprehensive and more layers of channel strategy, and particularly with the banks, we can acquire more merchants. And secondly, we are now penetrating into the middle to large-sized customers or the offline source by partnering with these SaaS providers with our API connectivity. So that's to your first question on the payments. And second question on Douyin and [indiscernible] competition. I think for -- at this moment, we don't see a lot of impact on our current business model. Just because these are very 2 different platforms that have 2 different business models to help the merchants to acquire traffic. So [indiscernible] is a very effective way for people to search and people to see ratings and reviews for different merchants. And for Douyin, it's really a proactive push, whenever a user or a viewer uses Douyin based on his or her user preferences or viewing habits, he or she can see different types of contents based on these user preference data. And it's really the merchants being pushed to these viewers or users ongoing. So it's 2 very different kind of business models. And for us, we really take an open platform approach, right? So we -- our platform is really, we work with Douyin today, and we can work with some other new media platforms in the future. So I think for our quite unique positioning within this local lifestyle service sector, I think the competition between the media side, it will not affect us, impacting a way it can be beneficial to us this year as more new media comes into this global lifestyle service market. So we think the monetization rates or the take rates and also the profitability should be within our control, and we view this actually quite favorably.

Our next question comes from the line of Cindy Wang from China Renaissance.

[Foreign Language] I'll translate my questions. So my first question is related to the payment. So since the app-based payment growth was quite nicely last year at 21%, but the traditional payment growth was down by about 20% year-over-year. So considering this year, the GPV target at 20% to 30% year-over-year, can you provide us the color of the breakdown by the [ FAs ] and the traditional payment growth rate this year? And the second question is related to the in-store e-commerce gross margin. So since the gross margin was expanded nicely in the second half of this year, so could you give us more color on why the gross margin can expand strongly in second half? And how do we expect the gross margin in 2023?

Thank you, Cindy, for your question. On the first question on the growth rate for breakdowns. So the base payments, which is really our core focus this year and because a lot of the small micro-sized merchants, they use the QR code payments. And as the COVID gradually recovers or the off-line consumption gradually picks up, it's no surprise that the app-based payment [indiscernible] GPV growth is faster than the traditional payments which tend to be impacted more. A lot of the, for example, the off-line luxury stores are affected or a lot of the for example, the real estate transactions off-line are affected with COVID. So for us, you can see that our app-based growth is faster. And going into 2023, I think the trend should be similar. The traditional and app-based payments, they should both see a growing trend in this year. But again, the [ FAs ] payment you should see a faster growth than the traditional it's just because our core focus on the QR code payments. So that's for the first question. And on the second question on the in-store e-commerce gross margins. So there are 2 potential -- 2 drivers to that gross margin increase in the second half. For one, is really accounting policy change. So for the KOL total Douyin commissions, so the Douyin commissions in the first half of the year is accounted for in the cost side for the in-store e-commerce. And in the second half of the year, because the cash flow is first coming into the -- in the first half of last year, the cash flow is first going into e-commerce accounts, then being transferred into KOL, into Douyin, into the merchants. But since the second half of 2022, the cash flow starts to change a little bit, which is the Douyin will first take out its portion first, and then the remaining cash flow will then be transferred to Yeahka. So that in our revenue recognition policy, we will then take out the Douyin commissions, which has accounted for about 2% of the GMV, first. And on the cost side, it will not be accountable. So that's one of the reasons why we see the gross margin to improve in the second half of the year. And another reason is because we have a greater scale, we are -- our brand name being more recognized within the KOL community. We can then -- that's very similar to payments, we can then share less commissions to KOL, because they are being reassured by working with Yeahka, they can sell more SKUs. Their content can be promoted on Douyin or on Kuaishou more effectively, so that it can earn a higher fee -- a higher CPS-based fee on their behalf, so that we can charge a low -- so that they can charge a lower percentages on the commissions to us. So that's another reason of the gross margin improvement in the second half of the year. And going forward, I think this year, we should see the gross margin to stabilize this year.

We'll be taking our final question from the line of Bin Duan from Nomura.

[Foreign Language] So my first question is about the payment competition landscape. So as Ben mentioned, we have already achieved the #1 position in the QR code payment market. So how do we look at the future competition landscape? Do we think the market will continue to consolidate? And we also mentioned that there will be overseas development. So can management share more color about the developments and our strategy? And second question is about the Merchant Solutions business. How do we think about the overall growth targets and strategy? And especially on SaaS, how do we look at the merchant -- the number of merchants or ARPU growth, et cetera?

Thank you for the question. For the first question on the competitive landscape on the payments. So the -- so there are 2 factors. For one is we see that there are quite a few licenses being revoked by the regulators in the past year because, obviously, it was a pretty crowded market in the last few years, and the regulators want to make sure only the most compliant players remain within the market. So I think with that, we are already leading the sector with a very significant market share. We should be able to capture this more consolidated market opportunity, particularly within the QR code payment to gradually further increase our fee rate and at the same time to further increase our market share with our diversed channel network strategy. We have more than 18,000 of these ISOs around China, and with the commercial bank partnerships and with the SaaS software provider partnership, I think we should be pretty comfortable there. And that's also why we are also exploring the overseas opportunities, which I will pass on to Luke to explain.

Okay. I think the most important thing for our OSV payment business is to creating a stable and solid infrastructure. So after we got some license from different country and area such as U.S., Singapore and Hong Kong, we continue to build the connection with the commercial banks, I mean to get the API and interface that can, I mean, to complete the whole payment process. So we do think the payment business overseas is a long-term strategy. So we have enough patience in this area. And for the product side, we already finished the pilot, I mean, test from QR code payment from U.S. to China, have the domestic merchant to receive money from, I mean, the entity in the U.S. and do the other currency exchange. And third, for the local acquiring business, we have acquiring license in Singapore. And now we have actual business now. Currently, I think more than 1,000 merchants are using our solution, acquiring solution. So, in summary, we do think the overseas strategy is very important for us. And we'll start from payment and try to explain more service to [indiscernible]. Thank you.

Right. So to your second question on the Merchant Solutions on the SaaS, it's a very asset-light model. And if you look at the gross margin profile, it actually has increased to 88% in the second half of 2022, up from 82% in the first half. So that basically just demonstrates that we have already completed a lot of our standardized and very intuitive product launch or product development. And all we need to do is to wait for the off-line consumption market to recover when we can go out and convert these payment customers into using our merchant solutions. And in fact, if you look at the ARPU, so previously, particularly in 2021, we've been -- similar to payments, we've been gradually reducing the ARPU for our merchant solutions and gradually up to about RMB 150. And actually, in fact, going to the second half of the year, although the conversion rate is stagnant due to the coronavirus, but we are keeping the ARPU as is at around RMB 150. And going forward, the core focus is 2 things. So for one, with our standardized and intuitive product, there are not -- the merchant, they can get on board with pretty much very minimal sales and marketing efforts and with minimal training. So they can basically register by themselves up when they are using our payment solutions. So we can do a lot of conversions there. And at the same time, as the merchants, they start to develop their user habit for our merchant solutions, we can gradually increase the ARPU by making them use more modules that we offer. We actually offer -- offering more than close to 100 different modules, both proprietary and third-party integrated. So jointly, we're offering a better digitalized solutions, particularly to the small- and medium-sized merchants. So I think it's a business that has a lot of potential to be very profitable, given its nature, but it takes time.

We have reached the end of the Q&A session. Thank you very much for all your questions. I would now like to turn the conference back to Ben for closing remarks.

So thank you once again for joining us today. If you have any further questions, please feel free to contact Yeahka's Investment Relations department through the contact information on our website. Thanks for your time.

This concludes today's conference call. Thank you for participating. You may now disconnect.