Company Profile

XGD INC., formerly Nexgo Inc., is a China-based company principally engaged in the research, design, development, manufacture, distribution and leasing of financial point of sales （POS） terminal software and hardware products. The Company is also engaged in the provision of bank card electronic payment technology services, biometrics, credit reporting and large data analysis and processing services. The Company's products include financial POS terminals, readers, biometric products and others. It distributes its products within domestic market and to overseas markets. （Source:MarketScreener）

Investment Highlights Having been working hard in the third-party payment for two decades, XGD INC. （“XGD”/ the company） has made its businesses at home and overseas flourish.

Established in 2001, the company has grown into a leading player in the third-party payment in China and it floated its securities on the ChiNext market in 2010.

The company’s main business covers payment services and scenarios digital services, electronics payment products, biometrics and auditing services.

Currently, the company has seen increases in profits from its electronic payment technology services in China while its overseas POS, electronic payment technology services in Europe and AIGC have been in a good momentum.

During 2017~2022, the CAGR of revenue growth was 28.40%.

l Thanks to the rise in transaction volume and expense rates, the company will fully benefit from it.

With the gradual recovery in vitality of medium- and small- size entities, the transaction size bottoms out.

As for the landscape of bank card acquiring service, the license plates will not be released any more in order to facilitate the competition environment and make market share concentrate on leading players.

In terms of expense rates, there is greater gap between domestic markets and overseas, leaving enough potential for improvements.

Since 2019, the company’s transaction size has seen a rapid growth; in July of 2023, the company has successfully extended its permits.

The company has developed stronger cohesion with customers as it continues to update its software and hardware products and services. With the continuous improvements in its market share, the company will fully benefit from the industry dividends.

Overseas business: Its POS business has born fruitful results, and it stepped up efforts in European markets and AIGC.

Benefit from the booming demand overseas, the company reported CNY 910 million in its overseas revenue, with CAGR during 2020~2022 reaching 78.07%.

In 2022, the company got approvals of repayment license plates in Europe, and is expected to spread its wings in Europe who enjoys higher profit rates.

Meanwhile, the company has actively rolled out business in AI, and carried out forward business layout centering on the AIGC application of pictures and videos, with a series of applications online one after another including AI drawing and face-changing.

In 2023, it marched into Web3.0 generative profile picture field in June, making its products boast competitive edges.

Earnings forecast and investment recommendation

The company’s bank card acquiring service has stepped into a good growth period, its overseas POS business has come to the realization period, and the bank card acquiring service business in Europe and AIGC layout are expected to open new growth potential.

We estimate its net income attributable to shareholders at CNY 697 million in 2023, CNY 998 million in 2024, and CNY 1.326 billion in 2025, implying a P/E ratio to 17.8x, 12.5x, and 9.4x, based on the closing price on July 20. We give it an “Outperform” rating with the first coverage.

Potential risks

less-than-expected transaction demand from medium- and small-sized businesses; slower-than-expected market expansion of overseas POS; slower-than-expected promotion of new technologies like AI