Fuiou may enjoy policy tailwind on ride to Hong Kong IPO

The payment services provider looks well-positioned to benefit from China’s consumption-boosting policies as it seeks to list

Key Takeaways:

• Hong Kong IPO candidate Fuiou could get a lift from China’s efforts to boost domestic consumption to reduce the country’s heavy reliance on overseas demand
• The payment services provider’s revenue grew at an average rate of nearly 20% over the last two years, and it is also profitable

By Warren Yang

Boosting domestic consumption has become a critical focus for Beijing lately as Donald Trump’s tariff bombs make export-reliant economies, like China’s, more vulnerable than ever to big swings in external demand. That could translate to big business for Chinese companies tied to the domestic retail economy, at least in theory.

One potential beneficiary of such a boom, if it comes, could be Shanghai Fuiou Payment Service Corp. Ltd., which operates digital payment services. That makes the company well-positioned to capitalize on China’s efforts to entice consumers into opening their wallets as Fuiou seeks to attract investors to its plan to list in Hong Kong.

Fuiou made a new public filing, its third, for the IPO last Friday, painting itself as a pioneer in integrated digital payment services with “recognized brand dominance and a prominent market position.” Citing third-party research, the company, founded in 2011, says it was among the first in China to offer multichannel digital payment software and additional services for e-commerce enterprises.

The Chinese government has rolled out a series of measures since last year to drive the country’s economic growth through domestic consumption, as its traditional reliance on exports has left it exposed to growing protectionism across the globe. While China’s exports continue to grow despite the pressures, foreign direct investment – another important economic engine that’s also dependent on external factors – has already begun to shrink.

Government programs to boost consumer spending range from rebates for trade-ins of old home appliances and smartphones for new ones, to a grand initiative dubbed a “Special Action Plan to Boost Consumption.” Against this backdrop, Citibank analysts this week upgraded China’s overall consumer sector to “overweight,” while also saying technology is one of the sectors that can benefit from Beijing’s new policy focus.

As a provider of technology-based services that are directly tied to consumption, Fuiou appears to be in a sweet spot in China’s current dull economy.

The company’s recent financial performance looks decent enough, especially considering its position in China’s fiercely competitive payment services sector. In the last two years, the company’s revenue grew at an average annual rate of nearly 20% to 1.6 billion yuan ($221 million) in 2024. And it’s stably profitable, although not hugely. It made a net profit of 84 million yuan last year, giving it a net profit margin of about 5%.

Fuiou gets more than 80% of its revenue from “acquiring” services, which help merchants, both online and traditional brick-and-mortar shop operators, collect funds from their customers. The company has processed more than 54 billion transactions worth 15.1 trillion yuan in total payment value (TPV) since its inception, the most among independent providers of integrated digital payment services in China, Fuiou said in its IPO document, citing third-party data.

High-margin services

Apart from its main transaction-processing services, “digital commerce-enabling solutions” are an emerging income source for the company. Such solutions include software as a service (SaaS), digital marketing services, account operations and invoicing for merchants. This business accounted for 7% of Fuiou’s revenue last year, up from 5.3% in 2023. Margins on these services are also relatively high, so Fuiou is looking to expand them to boost its profitability.

The company has also been successful in controlling costs. Its operating expenses amounted to 22% of its revenue in 2022, and it managed to reduce that ratio to 19% last year.

While the company’s story sounds good on the whole, there are also some red flags. While the recent 20% average annual revenue growth looks solid, a closer look shows that Fuiou’s growth slowed sharply last year. Its revenue increased by nearly a third in 2023, but then rose just about 8.5% last year.

The jump in 2023 probably owed mostly to the lifting of China’s strict Covid-19 restrictions at the end of the previous year, which resulted in a wave of “revenge spending” as shops reopened and consumption returned to more normal levels. So, that kind of growth isn’t likely to be repeated any time soon. Last year’s more tepid growth is more likely to represent the norm going forward, as China’s economy slows after the brief post-pandemic rally.

China intensified its efforts to stimulate domestic consumption only late last year, so it may take some time before notable results start to become evident, as the domestic economy remains on a weak footing amid the ongoing real estate slump, on top of global trade tensions. Retail sales increased a modest 4% year-on-year in the first two months of this year, slightly faster than 3.5% in 2024. In releasing the March figure, the National Bureau of Statistics said that “the foundation for sustained economic recovery and growth” is not solid enough.

Retail sales growth accelerated to 6% in March, but it remains to be seen whether that pace is sustainable. Fundamentally, low levels of household income and uneven wealth distribution in general are restraining consumption in China, Rhodium Group said in a report last July. That means that without significant changes in fiscal policy, household consumption growth in the country is likely to stay at 3%-4% in real terms in the next five to 10 years, the researcher said.

Fuiou also operates in a highly competitive industry that is dominated by giants like Alipay and WeChat, which are both part of much larger companies. Fuiou had a market share of just 0.8% in terms of total payment volume last year, so it may inevitably need to sacrifice its margins to gain share.

Shares of another payment services provider, Lianlian DigiTech (2598.HK), have fallen about 35% since the company’s Hong Kong IPO last year. While it remains well in the red, unlike Fuiou, Lianlian trades at a relatively respectable price-to-sales (P/S) ratio of 4.5 – a multiple that would value Fuiou at 7.2 billion yuan, or roughly $1 billion, based on its 2024 revenue.

Given that Fuiou is profitable, investors may be more interested in its potential, seeing it as a fresh opportunity to buy into China’s consumption growth story. But it may also face a fair amount of skepticism and caution in the absence of evidence that China’s consumption-boosting measures are having the desired effect.

To subscribe to Bamboo Works weekly free newsletter, click here