pax global tech (327 hk)pos product from the classic countertop pos terminal to the most advanced...

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Company Research Company update

See the last page of this report for important disclosures

Pax Global Tech (327 HK) Domestic EPOS leader with international presence PAX Global is the third largest EFT-POS maker based on the global

shipment in 2013. It offers a full range of EPOS solutions from

countertop terminals to the mobile and wireless models with NFC and

QR code functions. PAX ships its products to over 100 countries and

45% of its total revenue is generated overseas. The company achieved

a 59% YoY growth of revenue in 1H14 with earnings increased by

118% YoY on margin improvement.

Third largest EFT-POS brand on Earth PAX Global is an EFT-POS terminal solution provider. PAX offers a full range of EFT-

POS product from the classic countertop POS terminal to the most advanced

mobile and wireless model with NFC feature. According to the June issue of the

Nilson Report, PAX surpassed SZ Electronics (002197. CH) and became the third

largest POS terminal vendor in the world after it shipped about 2.06 million units in

2013, a 64% growth from 2012. Ingenico (INGC. PA) and VeriFone (PAY. US) still

lead the POS terminal industry with 30% and 19% market share, respecitvely.

Domestic EPOS leader with strong international presence PAX is one of the largest EFT-POS vendors in China and ships over 30% of the total

POS terminals in 2013. PAX also offers comprehensive after-sales services and

provides customized software solutions to clients, which is less addressed by its

domestic peers. The company adopts an R&D-focused and asset-light business

model, which enables it to successfully develop business in over 100 counties. In

1H14, 45% of the total sales are generated from oversea markets, indicating the

company is on track towards a target of 50:50 split between domestic and

overseas sales within three years.

Supportive policy from PBOC The PBOC has issued guidelines to encourage financial institutions to promote non-

cash payments in lower-tier cities and the adoption of the more secured IC card.

The migration to card payment in the rural areas in China that led by the third

party operators will be the new growing source for PAX in the domestic markets.

Solid 1H14 results The company has achieved a 59% YoY increase in total revenue and the sales in

oversea market have doubled YoY to HK$452.8mn in 1H14. Since oversea markets

offer higher margin than the domestic market, the GPM has improved from 35.5%

to 37.8%, further improved the bottom line. As a result, net profit increased by

118% YoY to HK$198.2mn in 1H14.

Figure 1: Financial Summary

Year to Dec 31 (HK$mn) 2009A 2010A 2011A 2012A 2013A

Revenue 493 724 1,103 1,313 1,472

Operating Profit 101 173 207 222 266

Reported Profit 85 145 182 183 227

Underlying EPS (HKD) 0.11 0.19 0.18 0.18 0.21

BVPS (HKD) 0.57 1.72 1.54 1.74 1.94

P/E (x) 61.6 36.2 40.1 40.0 33.4

P/B (x) 12.3 4.1 4.6 4.0 3.6

EPS growth (%) 0.0 70.0 (9.7) 0.4 19.9

Source: Guosen Securities(HK)

Hong Kong / Technology 06 August 2014 Non Rated Target price n/a Last price (6 Aug 14) HK$7.04 Upside/downside (%) n/a

HSI 24584.13

Mkt cap (HK$mn/US$mn) 7,724/997

52 week range (HK$) 2.30 - 7.10

Avg trading volume daily (US$mn) 3.82

Free float (%) 58.2%

Source: Bloomberg

Performance

Performance 1M 3M 12M

Absolute (%) 38.9 66.4 227.4

Absolute (US$, %) 38.9 66.5 227.7 Relative to HSI (%) 34.5 54.6 215.3 Source: Bloomberg

Company background

PAX Global Technology Ltd. is an electronic fund transfer point-of-sale (EFT-POS) terminal solutions provider. The Company principally engaged in the development and sale of EFT-POS products and provision of related services. PAX develop and sells countertop and mobile EFT-POS terminals which are able to process a wide range of electronic payment types. Source: Bloomberg

Max Gan SFC CE No.: BDA494 +852 2899 3145 [email protected]

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公司报告公司快讯

研究报告仅代表分析员个人观点，请务必阅读正文之后的免责声明。

百富环球 (327 HK) 雄踞中国，布局全球百富环球在 2013 年以超过两百万的出货量一跃成为世界第三大电

子 POS 机的生产商。公司提供全方位的电子 POS 机产品与服务，包

括最新带有 NFC 与二维码支付功能的型号，并销往超过 100 个国家。

在 14 年上半年公司的营收较去年同期增长了 59%，其中 45%源于海

外的销售。公司上半年净利润较去年同期亦有成倍的增长。

全球第三大电子 POS 机生产商百富环球作为电子 POS 机的领先生产商，提供了从常见的台式 POS 到最新

的无线移动型带有 NFC 功能型号的全方位产品线。根据最新 Nilson

Report 的数据，百富在 13 年共出货约两百万台，超过深圳证通电子成为

世界第三大电子 POS 机的生产商，占有全球约 10%的市场份额。法国的

Ingenico 与美国的 VeriFone 依然以 30% 与 19%的份额占据市场的前两位。

引领国内，布局全球百富在中国约有三成的市场份额。公司良好与全面的服务与个性化软件与

功能定制颇受国内客户青睐。百富采用轻资产，重研发的策略，为其成功

打开海外市场并将其产品销往超过 100 个国家奠定了基础。在 14 年上半

年，有 45%的销售额来自海外市场。公司目标在三年内将达到其一半的收

入来源于海外。

有利的商业环境中国人民银行多次发出指导意见鼓励金融机构在一二线城市以外加快推行

交易电子化并使用安全性较高的金融 IC 卡。在央行鼓励电子交易政策下，

配合电信运营商与银联在内的多方优惠计划，我们相信在第三方支付公司

在三四线城市的推进中，将为百富在国内带来新一轮的商机。

出色的上半年业绩. 公司的营收较去年同期上升了近 6 成，其中海外的收入由去年同期的 2 亿

港币翻倍至 4.5 亿港币。由于海外市场的毛利率较国内高，因此公司整体

的毛利上身了 250 百分点至 37.8%，进一步提升了公司的近利润。公司上

半年净利润因此较去年同期上升了 118%至 1.98 亿港币。

Figure 2: 盈利预测

截至 Dec 31 (港元百万) 2009A 2010A 2011A 2012A 2013A

营业额 493 724 1,103 1,313 1,472

经营盈利 101 173 207 222 266

净利润 85 145 182 183 227

每股实际盈利 (HKD) 0.11 0.19 0.18 0.18 0.21

每股账面价值 (HKD) 0.57 1.72 1.54 1.74 1.94

市盈率 (x) 61.6 36.2 40.1 40.0 33.4

市净率 (x) 12.3 4.1 4.6 4.0 3.6

每股盈利增长 (%) 0.0 70.0 (9.7) 0.4 19.9

资料来源：国信证券(香港)

香港 / 科技

2014 年 8月 6日未评级目标价 n/a 收盘价 (6 Aug 14) HK$7.04

Upside/downside (%) n/a

恒生指数 24584.13

总市值 (HK$/US$mn) 7,724/997

52周最高/最低 (HK$) 2.30 - 7.10

日均成交额 (US$mn) 3.82

流通量 (%) 58.2%

资料来源: 彭博

股价表现

股票数据 1M 3M 12M

绝对回报 (%) 38.9 66.4 227.4

绝对回报 (US$, %) 38.9 66.5 227.7

相对 HSI 回报 (%) 34.5 54.6 215.3


公司簡介

百富环球科技有限公司是一家电子支付(EFT-POS)终端机解

决方案供货商。该公司主要从事开发及销售 EFT-POS 产品

并提供相关服务。百富研制和销售能够处理多种类型电子

支付范围的台面和移动电子支付终端机。


甘中辉

证监会中央编号:BDA494 +852 2899 3145 [email protected]

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Pax Global Tech (327 HK) Max Gan, +852 2899 3145, [email protected]

Guosen Securities (HK) 3

Swiping for growth

PAX Global (PAX) is an EFT-POS (Electronic Fund Transfer-Point of Sale) terminal solution provider.

The company provides both countertop and mobile terminals to process electronic payments for

debit cards, credit cards, pre-paid cards or mobile devices, such as smartphones. The company’s

terminals support traditional magnetic-strip cards, smart chip cards, RF (Radio Frequency) cards or

mobile devices, such as smartphones. According to the June issue of the Nilson Report, PAX

surpassed SZ Electronics (002197. CH) and became the third largest POS terminal vendor in the

world after it shipped about 2.06 million units in 2013, a 64% growth from 2012. Ingenico (INGC.

PA) and VeriFone (PAY. US) still lead the POS terminal industry with 30% and 19% market share.

Product Range

PAX offers a full range of EFT-POS product from the classic countertop POS terminal to the most

advanced mobile and wireless model with NFC feature:

Figure 3 Global market share and shipment in 2012-2013

Source: Nilson Report, Guosen Securities(HK) Research

Figure 4 Product range offered by PAX

Counter Top Mobile and Wireless Contactless PINpad

Source: Company information, Guosen Securities(HK) Research

30%

19%

9%

8% 4%

4%

26%

Ingenico Verifone

PAX Technology SZZT Elect.

Fujian Newland Cybernet

others

2013 2012 Mfg Units Chg

1 1 Ingenico (France)

6,714,000 18%

2 2 VeriFone (U.S.)

4,162,000 -20%

3 4 PAX (China)

2,058,308 64%

4 3 SZZT (China)

1,681,900 5%

5 7 Newland (China)

963,650 46%

6 5 Cybernet (S.Korea)

846,072 30%

Other 5,914,966

Total 22,340,896 11%



The Global EFT-POS terminal market

Swiping cards remained the key growth drivers for non-cash transactions

Convenience and security are the two most important factors in the payment process. As

technology advances, new payment methods are continuously introduced and adopted by

consumers. We are seeing a continued up trend of non-cash transaction throughout the world

since 2007. According to Capgemini’s World Payments Report 2013, Non-cash transactions

recorded CAGR of 18.7% and 6.2% in developing and mature markets during 2007 to 2011,

respectively. We believe the trend continues in the past three years and will keep a global CAGR at

10% in the next 5 years as the migration to non-cash transaction in emerging market is

accelerating, and the new non-cash payment options are starting adopted by consumers in

developed markets.

The use of both debit and credit cards keeps growing as the most popular non-cash payment

methods. In the European Union, total card payments achieved a CAGR of 7.6% between 2008 and

2012, reached Euro39.8bn in 2012. Despite the variety of non-cash payment methods, card

transactions accounted for 37% of the total non-cash payment transactions in 2007 and increased

to 41% in 2011. In the U.S., the total number of card payment transactions was 50bn in 2007 and

reached 82.4bn in 2012, representing a CAGR of 10.5%. Card payment accounted for 53% of the

total non-cash payment transactions in 2007 and increased to 66% in 2012.

Similar pattern is observed in developing countries, but at a faster pace. Non-cash payment

transactions had a CAGR of 15%, 20% and 26.6% in Latin America, Emerging Asia and CEMEA,

respectively, during 2007 and 2011. Card transactions accounted for 46%, 79% and 72% in 2011, of

the total non-cash payment methods. Despite the high growth rates, the number of total card

transactions in these three areas is much less than the developed countries. The sum of the card

transactions in the developing counties reached 44.7bn in 2011, less than 60.7bn in North America.

The gap leaves business potentials for POS terminal makers like PAX Global, as the usage of card

payment method partly depends on the number of POS terminals installed.

EMV and new securities standard stimulate POS upgrade

Since 2002, Europay, Mastercard & Visa and other credit card networks have been promoting a

standard (i.e. the EMV standard) that requires all credit cards to have an IC chip in it as a more

advanced anti-fraud measure than what is available in traditional magnetic-strip cards. This new

standard created POS terminal upgrade needs for merchants using non-EMV compliant POS

terminals. By 4Q13, most of the terminals other than those in the US and Asia Pacific have met the

EMV standard.

Figure 5 POS Installed Devices Per 1,000 People

Source: European Central Bank, The World Bank, Guosen Securities(HK) Research



The main reason of low adoption rate in the U.S. is due to the high cost of switching to IC card and

EMV-compliant EFT-POS Terminal. A magnetic-stripe card costs US$0.25 compared with US$1.25-

$2.5 for an IC card. In addition, It is estimated that the cost of upgrading the whole customer

terminal in U.S. is close to $6.8billion. The total cost of switching to EMV-compliant payment

system will be at least $8 billion, where the card fraud costs of the U.S. card payment industry is

estimated at $5.5 billion estimated by the US Federal Trade Commission. The relatively low

benefits brought by upgrading the system reduce the incentives for merchants and financial

institutions to take the initiative. Also the unbalanced distribution of the benefit and cost of

upgrading the whole system among the financial institutions and merchants make them hesitate

to take the initiative.

The incentive was strengthened in 2011 by Visa. A policy was announced that the counterfeit fraud

liability would shift to acquirers and merchants if the merchant does not have an EMV-compliant

POS device after Oct. 2015. MasterCard also has similar policies that for merchants have upgraded

their systems and terminals to EMV standard, they will be 100% relief of those fraud costs if 95%

of its transactions take place on EMV terminal. Currently, credit card holders in the U.S. have

limited liability of $50 in the event that their card is stolen and misused without their consent, if

they reported the fraud within 60 days of receiving the statement. Merchants and financial

institutions bears the losses. Other credit card companies have similar arrangements to promote

the more secure EMV standard.

VeriFone estimated that there are 10m customer-facing POS in the US today and most of them will

be upgraded to EMV-compliant models and there will be another 30% increase in the total

addressable market as an organic growth. The upgrade demand creates opportunities for POS

vendors. Despite the U.S. accounted for only 2% of total sales of PAX in 2013, we believe the

company will try to penetrate into the US market via expanding sales channels or through M&A

moves.

Figure 6 Worldwide EMV Global Adoption

Source: EMVco, Guosen Securities(HK) Research



Similar actions were taken by authorities in China to strengthen the security of card payments. The

PBOC announced in March 2011 that, from the beginning of 2015, all card issued by commercial

banks in most cities of the country should be IC card. This indicates that the previous generations

of EFT-POS terminal will be replaced to enable the option of Chip-and-PIN card payment to be

available.

Competitive Advantages

Leader in the domestic EFT-POS industry

According to the Nilson Report, PAX is one of the largest EFT-POS vendors in China and ships over

30% of the total POS terminals in 2013. Global POS leader Ingenico had secured its position in

China through acquiring Fujian Landi Commercial Equipment (shipped 2.2mn POS terminals in

2013), which also accounted for about 30% of the market. SZZT Electronics(002197, CH) mainly

supplies products to financial institutions and weight less on EFT-POS terminals that used by

merchantsFujian Newland (000997, CH) and Shenzhen Xinguodu (300130, CH) are less than half

the size of PAX in terms of total shipment size. To secure its leading position in the domestic

market, PAX also offers comprehensive after sales services and provides customized software

solutions to clients, which is less addressed by its domestic peers.

PAX is an asset-light company and it focuses on R&D in product development. It outsources the

manufacturing process to PKS, which operates factories in Panyu, Guangdong Province. PKS is

owned and managed by a Japanese electronics company Kyokuto Electronic. PAX further secures

the quality of its product by procuring the raw materials on its own. With its asset-light business

model, PAX can focus on the research and development side of the business, which it believes as

its core competitive advantage. PAX allocates around 7% of its revenue as R&D expenses every

year. Over 50% of the headcount in PAX are R&D engineers or related roles, which is higher than

its peers.

Certified globally

The major entry barrier of the EFT-POS terminal industry is compliance of various levels of security

certifications. There are three layers of certifications, from international to customer levels and

PAX has acquired most of them. PAX has passed Paywave (Visa), PayPass (Master),TQM standards

and the following certifications in different levels:

International Level: EMV level 1& 2, PCI,

Country level: PBOC, JCB, UKCC, CB2, Anatel, ABECS etc.

Customer Level certification: Class A&B certification in North America

Figure 7 Asia/Pacific POS Terminal Shipments in2013 (mn units)

Source: Nilson Report, Guosen Securities(HK) Research

2.4

1.7

1.6 0.9

0.8

3.4

Ingenico PAX SZZT Fujian Newland Xinguodu others



International Presence

PAX has a strong international presence and its products are sold to over 100 countries and the

company derived 45% of 1H14 revenue from overseas sales while their other domestic peers

mainly focus in the domestic market. For example, according to Nilson Report, Fujian Newland

exported 27,650 units in 2013, which is less than 3% of its total annual shipment. PAX’s strategy is

to further expand its oversea business while maintaining its leading position in the domestic

market and eventually reach a geographical diversified source of earnings (a target of 50:50 in

three years).

In 1H14, turnover generated from overseas market increased 124% YoY to HK$452.8mn for 1H14

from HK$201.7mn. This is due to the strong shipment in Brazil (World Cup effects) and Middle-East

countries like Iran in 1H14. For similar EFT-POS product, the gross margin in oversea market is

40%~50%, higher than 28%~30% in domestic market. Oversea clients usually place large batch

orders in compare to the small and irregular orders from domestic clients (major financial

institutions).

Developing markets provide strong growth potential. For example, POS device penetration in

Brazil is comparable to developed countries as the figure for Brazil is higher than German,

according to the World Bank. The coming 2016 Summer Olympic in Brazil will be another positive

catalyst for POS terminal vendors as it will stimulate the consumer market where the total

addressable market will be further expanded.

Figure 8 Revenue source of PAX for the six months ended 30 June

Source: Company data, Guosen Securities(HK)Research

Edges over international peers

PAX’s POS product is price competitive compare similar product lines from its oversea peers. The

ASP of a POS terminal sold in oversea market is HK$1400-1500 comparing to HK$800-900 for

domestic market. However, it’s overseas prices are still about 20% lower than similar products

from Ingenico, despite the latter have better design in software and after-selling services. However,

we believe for emerging markets where price plays an important role in sales, PAX’s product will

have the price advantage and gaining more market shares.

Supportive business environment

As at 10 July 2014, the PBOC have issued payment licenses to 269 third party payment companies

since 2011. Over 50 of those have acquiring licenses, and they became a new group of clients to

PAX since then. These acquirers have been installing EFT-POS terminals for merchants that have

been neglected by large financial institutions, especially in the Tier-3 & Tier-4 cities. The PBOC has

repeatedly issued guidelines to encourage financial institutions to promote non-cash payments in

these areas and the adoption of the more secured IC cards. The migration to card payment in the

rural areas in China that led by the third party operators will be the new growing source for PAX in

the domestic markets.

80%

64% 59% 68%

55%

20%

36% 41% 32%

45%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

China Market Oversea Market

213.3 288.2 313.1

429.4 552.9

54.4

163.2 216.8

201.7

452.8

0

200

400

600

800

1000

1200

2010 2011 2012 2013 2014

HK

$'m

n

China Market Oversea Market



In the major cities where the penetrating rate of EFT-POS terminal is high, we are expecting an

upgrade need to new models that equipped with new ways of payment like NFC and QR code. PAX

is one of the beneficiaries of the promotion of the NFC-enabled terminal migration promoted by

the telecoms operators in China. To encourage the using of NFC technology according to

Chinatimes, China Mobile will provide subsidies of RMB 30 for each NFC mobile phone sold, and

require all the 4G smartphone they procured to equip with NFC chips. On the terminal side, China

UnionPay also promotes the NFC payment by subsiding RMB 300-500 to help with upgrading the

terminal to be NFC-enabled. In 2014, about 65% of the domestic POS terminal orders are NFC-

enabled models, compare to 25-35% a year before. Despite the similar margin, NFC-featured

terminal has a 20-30% higher ASP than non-NFC terminals, which indicating a better top line

growth for PAX.

Outstanding 1H14 Results

The company achieved a 59% YoY increase in 1H14 revenue, which was driven by the strong

growth in oversea markets, where sales doubled from HK$201.7mn in 1H13 to HK$452.8mn in

1H14. Since oversea markets offers higher margin than the domestic markets, GM has improved

from 35.5% to 37.8%, further improved the bottom line. Net profit increased 118% to HK$198.2m.

PAX has obtained the approval from the relevant Chinese tax authorities in March 2014 the

eligibility for a preferential tax rate of 10% for 2013 and 2014. Write-back in overprovision of tax in

2013 resulted in the relatively low effective tax rate of 7.6% in 1H14, excluding which the effective

tax rate would be 12%. The company also recorded other income of HK$30.7m, which represented

an increase of 136% YoY due to VAT refund of HK$18.2m (+251% YoY) and interest income of

HK$11.6m (+88% YoY)



Figure 9 PAX’s Interim Result


HK$’mn 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14

Revenue 196.2 296.7 267.7 455.9 451.4 651.7 529.8 783.5 631.1 841.4 1005.7

EFT-POS Terminal 94.62% 91.55% 88.18% 86.31% 86.00% 86.00% 88.71% 89.19% 91.48% 94.14% 93.62%

Consumer activated devices 1.38% 4.53% 4.27% 8.60% 11.00% 9.31% 8.72% 7.51% 4.07% 2.20% 3.46%

Contactless devices 0.32% 1.02% 3.33% 2.81% 1.00% 2.69% 0.53% 1.32% 1.40% 0.70% 0.89%

Services 3.20% 2.46% 2.39% 1.77% 1.00% 1.00% 1.74% 0.50% 1.50% 0.63% 1.27%

Other 0.48% 0.42% 1.83% 0.51% 1.00% 1.00% 0.29% 1.48% 1.55% 2.34% 0.75%

Seasonal 40% 60% 37% 63% 41% 59% 40% 60% 43% 57% n/a

COGS (127.0) (173.1) (158.7) (273.0) (296.5) (415.0) (321.0) (528.1) (407.1) (524.3) (626.0)

Gross profit 69.2 123.6 109.0 182.9 154.9 236.8 208.8 255.4 224.1 317.1 379.7

Opex (39.5) (52.8) (54.6) (92.1) (86.3) (139.7) (123.1) (147.9) (132.6) (192.7) (196.0)

Operating profit 29.7 70.8 54.3 90.8 68.7 97.1 85.7 107.5 91.5 124.4 183.7

Int income 0.1 0.1 0.4 0.6 1.7 4.7 5.5 5.2 6.1 8.7 11.6

Other income & gains 2.6 7.9 4.3 23.1 7.8 34.0 17.8 10.6 13.0 37.4 30.7

Finance costs (0.3) (0.1) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Pre-tax profit 31.9 78.6 58.7 113.8 76.4 131.0 103.5 118.1 104.5 161.7 214.4

Tax (4.7) (10.8) (8.5) (18.6) (9.2) (16.5) (20.1) (20.2) (13.7) (26.0) (16.2)

Effective tax rate 15% 14% 14% 16% 12% 13% 19% 17% 13% 16% 8%

Net profit 27.2 67.8 50.2 95.3 67.2 114.6 83.4 97.9 90.8 135.8 198.2

Seasonal 29% 71% 35% 65% 37% 63% 46% 54% 40% 60% n/a Margins

Gross Profit Margin 35.3% 41.7% 40.7% 40.1% 34.3% 36.3% 39.4% 32.6% 35.5% 37.7% 37.8%

Op Margin 15.1% 23.9% 20.3% 19.9% 15.2% 14.9% 16.2% 13.7% 14.5% 14.8% 18.3%

Pre-tax Margin 16.3% 26.5% 21.9% 25.0% 16.9% 20.1% 19.5% 15.1% 16.6% 19.2% 21.3%

Net Margin 13.9% 22.9% 18.7% 20.9% 14.9% 17.6% 15.7% 12.5% 14.4% 16.1% 19.7%

HoH Change

Sales 51.2% -9.8% 70.3% -1.0% 44.4% -18.7% 47.9% -19.4% 33.3% 19.5%

Net income

149.1% -26.0% 89.8% -29.4% 70.3% -27.2% 17.4% -7.3% 49.6% 46.0%

YoY Change

Sales 36% 54% 69% 43% 17% 20% 19% 7% 59%

Net income

84% 40% 34% 20% 24% -15% 9% 39% 118%



Figure 10 Margins and earnings in 2009-2014(HK$’mn)


Risks

A single product company In 2013, the company derived 97% of revenue from sale of POS terminals and the 3% from services and others. During the same time, Verifone and Ingenico derived over 37% and 28% of their revenue from services, respectively. With the raise of cloud technology, Verifone started promoting a concept of Payment-as-a-Service(PaaS). It is a subscription based bundle of services and solutions to retailers. All terminals are connected to cloud and it serves both online and offline payment needs. Ingenico has an affiliate company Roam to specialize in mCommerce platform for end-to-end mobile POS solution to clients. We believe the lack of capability to provide value-added services is one of the reasons that PAX is trading at valuation discount comparing to its overseas peers. The management has set the strategy to strengthen the software development ability via recruiting experienced software engineers.

Uncertainty with abundant cash At of June 2014, PAX held about HK$1.56bn in cash with no debt. When the company was listed in 2010, it planned to use about HK$235m of the total IPO proceeds of HK$806m for potential M&A purpose. However, it did not make any material acquisition since then but we believe PAX has been actively looking for M&A opportunities to expand it’s businesses, especially in overseas markets where the gross margin is higher. The company announced on 18 July to purchase RMB 180m of wealth management product (WMP) from Bank of China with a guaranteed annualized return of 4.05%, in period of 166days and 75 days. While investments in WMP helps improving the return of its cash holdings, it may also change the company’s risk profile.

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

1H09 1H10 1H11 1H12 1H13 1H14

Gross Profit Margin Op MarginPre-tax Margin Net Margin

0.0

200.0

400.0

600.0

800.0

1000.0

1200.0

Revenue Net profit



Summary financial statements

Profit & Loss (HK$mn) 2009A 2010A 2011A 2012A 2013A Financial Ratios 2009A 2010A 2011A 2012A 2013A

Revenue 493 724 1,103 1,313 1,472 Revenue growth (%) 0.0 46.8 52.5 19.0 12.1

Cost of sales (300) (432) (711) (849) (931) Operating profit growth (%) 0.0 71.6 20.3 6.8 20.0

Gross profit 193 292 392 464 541 Reported profit growth (%) 0.0 72.0 25.0 0.6 23.8

Other income/(expense) 10 27 42 28 50 Underlying profit growth (%) 0.0 72.0 25.0 0.6 23.8

Operating expenses (103) (147) (226) (271) (325) Underlying EPS growth (%) 0.0 70.0 (9.7) 0.4 19.9

Operating profit 101 173 207 222 266 Dividend growth (%) 0.0 0.0 0.0 0.0 0.0

Other non operating inc/(exp) 0 0 0 2 0 Gross profit margin (%) 39.1 40.3 35.5 35.3 36.7

Finance income 0 0 0 0 0 Operating profit margin (%) 20.4 23.8 18.8 16.9 18.1

Finance expenses 0 0 0 0 0 Underlying profit margin (%) 17.2 20.1 16.5 13.9 15.4

Associates & JCE 0 0 0 0 0 Net debt/equity (%) (57.3) (82.9) (72.0) (75.6) (81.4)

Profit before taxation 100 173 207 223 266 Net debt/total assets (%) (42.8) (70.8) (57.4) (62.4) (60.0)

Taxation (16) (27) (26) (40) (40) Current ratio (%) 390 685 493 570 379

Non-controlling interests 0 0 0 0 0 Dividend payout (%) 0.0 0.0 0.0 0.0 0.0

Net profit 85 145 182 183 227 Interest cover (x) 234.3

Other Adjustments on UP 0 0 0 0 0 Dividend cover (x)

Underlying Profit 85 145 182 183 227 Dupont Analysis 2009A 2010A 2011A 2012A 2013A

Source: Guosen Research estimates Tax burden (%) 84.5 84.3 87.6 82.0 85.1

Interest burden (%) 99.6 100 100 101 100

Operating profit margin (%) 20.4 23.8 18.8 16.9 18.1

Asset turnover (x) 0.9 0.7 0.6 0.6 0.6

Leverage ratio (x) 1.3 1.2 1.2 1.2 1.3

ROA (%) 14.9 14.0 10.4 8.7 9.0

ROE (%) 20.0 17.0 12.6 10.7 11.6

Source: Guosen Research estimates

Balance Sheet (HK$mn) 2009A 2010A 2011A 2012A 2013A Cashflow (HK$mn) 2009A 2010A 2011A 2012A 2013A

Fixed assets 9 11 11 10 8 Operating profit 100 173 207 223 266

Associates & JCE 0 0 0 0 0 Depreciation & amortization 2 3 3 3 4

Others 0 0 0 0 0 Interest income 0 (1) (6) (11) (15)

Non-current assets 9 11 11 10 8 Change in working capital 53 (34) (194) 15 78

Inventories 111 149 306 244 465 Tax paid (4) (22) (30) (29) (42)

Debtors & prepayments 202 276 521 555 644 Other operating cashflow (1) (1) (13) 0 0

Bank deposits & cash 242 1,067 1,152 1,358 1,698 Operating activities 150 117 (33) 202 292

Others 2 3 16 26 17 Purchase of non-current assets (Capex) (3) (5) (2) (3) (1)

Current assets 556 1,494 1,995 2,183 2,824 Free cash flow 147 113 (35) 199 290

Bank & other borrowings 0 0 0 0 0 Disposal of non-current assets 0 0 0 0 0

Trade & payables 87 143 250 225 446 Associates & JCE (net) 0 0 0 0 0

Taxation 14 19 15 27 25 Interest received 0 1 5 12 15

Others 41 56 140 131 275 Dividends received 0 0 0 0 0

Current liabilities 143 218 405 383 746 Other investing cashflow 0 0 0 (8) 10

Bank & other borrowings 0 0 0 0 0 Investing activities (3) (3) 2 1 23

Others 0 0 0 0 0 New loans raised 0 0 0 0 0

Non-current liabilities 0 0 0 0 0 Repayment of loans (15) 0 0 0 0

Net assets 423 1,287 1,601 1,811 2,087 Dividends paid 0 0 0 0 0

Share capital 0 100 104 104 104 Other financing cashflow 0 701 105 0 8

Premium & reserves 423 1,187 1,497 1,707 1,983 Financing activities (15) 701 105 0 8

Shareholders' funds 423 1,287 1,601 1,811 2,087 Inc/(dec) in cash 132 815 75 203 323

Non-controlling interests 0 0 0 0 0 Cash at beginning of year 110 242 1,067 1,152 1,358

Total equity 423 1,287 1,601 1,811 2,087 Foreign exchange effect 0 9 11 3 17

Source: Guosen Research estimates Cash at end of year 242 1,067 1,152 1,358 1,698

Source: Guosen Research estimates



Information Disclosures

Stock ratings, sector ratings and related definitions

Stock Ratings:

Buy: A return potential of 10 % or more relative to overall market within 6 – 12 months.

Neutral: A return potential ranging from -10% to 10% relative to overall market within 6 – 12 months.

Sell: A negative return of 10% or more relative to overall market within 6 –12 months.

Sector Ratings:

Overweight: The sector will outperform the overall market by 10% or higher within 6 –12 months.

Neutral: The sector performance will range from -10% to 10% relative to overall market within 6 –12 months.

Underweight: The sector will underperform the overall market by 10% or lower within 6 – 12 months.

Interest disclosure statement

The analyst is licensed by the Hong Kong Securities and Futures Commission. Neither the analyst nor his/her associates serves as an

officer of the listed companies covered in this report and has no financial interests in the companies.

Guosen Securities (HK) Brokerage Co., Ltd. and its associated companies (collectively “Guosen Securities (HK)”) has no disclosable

financial interests (including securities holding) or make a market in the securities in respect of the listed companies. Guo sen

Securities (HK) has no investment banking relationship within the past 12 months, to the listed companies. Guosen Securities (HK)

has no individual employed by the listed companies.

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The content of this report does not represent a recommendation of Guosen Securities (HK) and does not constitute any

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信息披露

公司评级、行业评级及相关定义

公司评级

买入：我们预计未来 6-12 个月内，个股相对大盘涨幅在 10%以上；

中性：我们预计未来 6-12 个月内，个股相对大盘涨幅介于-10%与 10%之间；

减持：我们预计未来 6-12 个月内，个股相对大盘跌幅大于 10%。

行业评级

超配：我们预计未来 6-12 个月内，行业整体回报高于市场整体水平 10%以上；

中性：我们预计未来 6-12 个月内，行业整体回报介于市场整体水平-10%与 10%之间；

低配：我们预计未来 6-12 个月内，行业整体回报低于市场整体水平 10%以上。

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pax global tech (327 hk)pos product from the classic countertop pos terminal to the most advanced...

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