Lakala Payment Co., Ltd. (300773.SZ), often referred to as China's first listed payment company, released its 2025 annual report and its 2026 first-quarter report simultaneously on April 16. In 2025, driven significantly by investment income, the company's net profit attributable to shareholders surged by over 200% year-on-year, reaching a historic high. However, both operating revenue and core net profit excluding non-recurring items declined. The trend of soaring net profit continued into the first quarter of 2026. Although core business revenue showed signs of a temporary recovery, concerns persist regarding operating cash flow and the quality of earnings.
The domestic third-party payment industry is currently navigating intense competition in a mature market. Against a backdrop of growing pressures from industry rivalry, regulatory compliance, and declining fee rates, Lakala, as an established leading payment institution, is undergoing a painful transition. The company is contending with a contraction in its traditional payment business while accelerating the development of new growth drivers like cross-border payment and technology services. This creates a stark contrast between impressive short-term book profits and the underlying pressure on its core operations. Furthermore, the stalled plan for a Hong Kong listing presents another challenge in its transformation journey.
The surge in net profit appears inflated by non-core activities. The annual report data shows that in 2025, Lakala achieved total operating revenue of 5.547 billion yuan, a decrease of 3.68% year-on-year. Net profit attributable to shareholders was 1.171 billion yuan, a substantial increase of 233.33% year-on-year, marking a record high. However, the core net profit excluding non-recurring items was only 301 million yuan, falling by 45.58% year-on-year. Net cash flow from operating activities was 607 million yuan, down 32.53% compared to the previous year.
Non-recurring gains were the primary driver behind the profit surge. The report indicates that in 2025, Lakala sold a portion of its shares in BlueFocus Communication Group, reducing its stake to 2.62%. As it no longer exerts significant influence over BlueFocus, the accounting method for this investment shifted from the equity method for long-term investments to measuring it at fair value with changes recognized in current profit or loss. Throughout 2025, Lakala recognized a total of 975 million yuan from its BlueFocus holdings, comprising 625 million yuan in investment income from the equity method, share disposals, and the accounting change, plus 350 million yuan in fair value gains.
In terms of profitability, the company's gross profit margin for 2025 was 25.33%, down 4.69 percentage points year-on-year. The net profit margin was 21.24%, an increase of 15.14 percentage points, primarily reliant on investment income. The core net profit margin excluding non-recurring items was 5.43%, down 4.17 percentage points, indicating an actual weakening of profitability from main operations. On the cost side, the period expense ratio for 2025 was 18.2%, up 1.2 percentage points year-on-year. Sales and management expenses increased slightly due to business expansion, while R&D expenses remained stable, showing the company maintained some investment intensity despite core business pressures.
The Q1 2026 report, released the same day as the annual report, showed operating revenue of 1.614 billion yuan, up 24.2% year-on-year. Net profit attributable to shareholders was 595 million yuan, a massive increase of 490.97%. However, core net profit excluding non-recurring items was only 85.8908 million yuan, a mere increase of 1.43%. Notably, net cash flow from operating activities turned significantly negative at -84.3873 million yuan, compared to a positive 16.7273 million yuan in the same period last year.
The logic behind the Q1 net profit surge mirrored that of 2025: the complete divestment of BlueFocus shares generated 551 million yuan in investment income, while the core business saw only minimal growth. The revenue recovery in the quarter is a positive signal, with the gross margin rising 0.83 percentage points year-on-year to 24.15%, suggesting a slight improvement in core business profitability. However, the severe deterioration in cash flow is attributed to factors like payment reserve fund management, adjustments to merchant settlement cycles, and increased funding advances for business expansion, raising short-term liquidity pressures.
Lakala's operations are divided into two main categories: digital payment services and technology services. Digital payment encompasses comprehensive solutions for various scenarios, including online/offline B2C and B2B payments, cross-border payments, and foreign card acceptance. Technology services involve applying technologies like AI and blockchain to provide digital solutions for SMEs, industry clients, and financial institutions.
Digital payment remains Lakala's dominant segment. In 2025, payment service revenue was 4.874 billion yuan, down 5.65% year-on-year, accounting for 87.86% of total revenue. This decline was mainly influenced by overall pressure on bank card payments. The total domestic acquisition transaction value was 39.4 trillion yuan, down 6.75% year-on-year. Within this, bank card transaction value fell more noticeably by 13.73% to 24.7 trillion yuan, while scan-code transaction value grew 7.9% to 14.7 trillion yuan.
In Q1 2026, the domestic acquisition business stabilized and rebounded. The total acquisition transaction value was 11.2 trillion yuan, up 14% year-on-year. Card-based transactions increased 6% to 7.061 trillion yuan, halting the previous decline, while scan-code transactions jumped 31% to 4.147 trillion yuan. Benefiting from this recovery in payment transaction volume, Q1 payment service revenue reached 1.385 billion yuan, an increase of 20.06%.
Cross-border payment emerged as a standout performer. In 2025, cross-border payment transaction value soared 80.69% to 88.9 billion yuan, serving over 210,000 clients, a increase of 73.99%. This rapid growth continued into Q1 2026, with transaction value up 39% and the number of merchants served growing 62%. As growth in traditional payment services plateaus, international expansion has become a key new avenue for the payment industry. Lakala noted in its report that it seized opportunities from the RCEP agreement, expanding localized collection services in emerging markets along the "Belt and Road" initiative, adding capabilities in regions like Brazil and Mexico beyond its Southeast Asia and Africa footprint.
Technology services constitute Lakala's second strategic pivot for transformation. Revenue from this segment reached 408 million yuan in 2025, surging 44.05% year-on-year and accounting for 7.35% of total revenue, far outpacing overall growth. In Q1 2026, technology service revenue was 111 million yuan, up 93.81% year-on-year. A key driver was the acquisition and consolidation of leading restaurant SaaS provider Tiancai Shanglong in June 2025, creating a dual-brand strategy ("Tiancai Shanglong" + "Qingcheng Cloud") serving over 80,000 mid-to-high-end restaurant outlets. Efforts in retail SaaS, "payment + ERP," and merchant digitalization solutions also progressed, serving over 100,000 retail merchants, indicating significant advances in the "payment + SaaS" model.
Overall, Lakala's operational landscape from 2025 into Q1 2026 is clear: the traditional payment business contracted but has shown signs of stabilization, remaining the largest revenue contributor yet with weak growth; the two new businesses—cross-border payment and technology services—are growing rapidly but are still too small to offset the decline in the core business; and both operating cash flow and core profit quality have deteriorated, presenting a mix of short-term challenges and long-term opportunities.
Concurrent with the earnings release, Lakala's plan for a Hong Kong listing has been put on hold. The company submitted its IPO application to the Hong Kong Exchange on October 17, 2025, aiming to establish a dual capital platform (A+H shares), with China Securities International as the sole sponsor. The proposed funds were intended for international expansion, technology service R&D, and merchant ecosystem development. According to HKEX rules, the application lapsed after six months on April 17, 2026, as it was not updated and no hearing was conducted, effectively stalling the listing plan.
This lapse may not be coincidental but rather the result of converging issues related to performance, compliance, shareholders, and valuation. Around the time of the application, several negative signals emerged: revenue and net profit both declined year-on-year in the first three quarters of 2025, with core revenue continuously shrinking; Sun Haoran, brother of founder Sun Taoran and the third-largest shareholder, executed a complete sell-down, cashing out 493 million yuan; major shareholder Legend Holdings also reduced its stake from 26.54% to 23.54%; in 2024, the company received seven regulatory penalties totaling over 8.5 million yuan for compliance issues, including inadequate merchant verification; coupled with industry-wide pressures and low valuations for payment stocks in Hong Kong, these factors likely hindered the IPO progress.
Faced with inflated short-term earnings and long-term transformation pressures, Lakala's path forward is clear yet arduous. It must stabilize its traditional payment base by optimizing its merchant portfolio, increasing the share of high-quality merchants, and leveraging growth scenarios like scan-code payments and digital yuan to slow the core business decline, while deepening its presence in offline B2B merchant scenarios to solidify its competitive edge. Simultaneously, it needs to scale up the two new growth engines: for cross-border payment, deepen its presence in emerging markets and expand innovative services like foreign card acceptance and digital yuan cross-border settlement to boost overseas market share; for technology services, continue expanding into verticals like retail, culture/tourism, and dining, and deepen the integration of "payment + SaaS + AI" to enhance customer loyalty and value-added services.
The company also needs to continuously optimize its profit structure, improve the profitability quality of its core business, and enhance operating cash flow to alleviate short-term liquidity pressures. The ultimate goal is to transition from a mere "payment channel" provider to a "comprehensive digital service provider," all while maintaining strict compliance and strengthening its risk control framework.
Currently, China's payment industry has fully entered a phase of stable development after a period of rapid expansion. Overall industry transaction growth has slowed, and competition for existing customers has intensified. Meanwhile, continuous regulatory improvements and technological innovations are driving a sector-wide shift from scale expansion to quality upgrades, accelerating a reshaping of the competitive landscape. The operational performance of different payment institutions is increasingly diverging, with more companies seeking new growth avenues to break through existing bottlenecks.
Lakala's performance from 2025 to 2026 exemplifies the growing pains of the third-party payment industry: traditional business growth has peaked, new businesses are still being nurtured, and the profit structure urgently needs optimization. In the short term, the net profit attributable to shareholders is expected to return to a level more reflective of its core operations once the boost from investment income subsides, while pressures on the main business and cash flow are likely to persist. Long-term prospects, however, are anchored in the rapid growth of cross-border payment and technology services, which open a potential second growth curve for the company. Its licensing advantages and strong position in the B2B merchant market provide a solid foundation for this transformation.
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