PAX Global 327.HK BUY Dennis Chien

[Table_MainInfo]
Equity Research Report
24 Oct 2014
[Table_Author]
Research Analyst
[Table_Title]
PAX Global 327.HK
Dennis Chien
852 3983 0835
[email protected]
[Table_Target]
Rating
Target Price
Upside Potential
Company Data (as of 24 Oct mkt close)
327HK
Share Price
(HK$)
Market Cap
Outstanding Shares
(HK$ mn)
(mn)
52wk Low
(HK$)
52wk High
(HK$)
P/E
(x)
P/B
(x)
3.45
EV/EBITDA
(x)
11.16
Div yld
(%)
-
ROE
(%)
15.74
Net Debt / Equity
(%)
Net Cash
Gearing
(%)
Auditor
Fidelity
Share Price Chart (HKD)
 Expansion in overseas markets faster-than-expected. PAX has
[Table_Summary]
continually made breakthrough in overseas market for the past few
months including partnering with Derpos to expand Turkey market,
cooperate with Egyptian govt., joins hands with three big Indonesian
banks, being selected by ASB Bank in New Zealand, etc. We expect
substitution effects continues at a faster pace where PAX will be able
to gain larger market share against peers.

The U.S. law shifts the frauds liability from banks to merchants
commencing in Oct 2015. PAX has double its team size in the U.S.
operations to 35 people, mainly focus on I.T. engineers and salesmen.
We expect such action is due to the opportunity rise from EMV
migration, weaken competitiveness of competitors, and a more
profitable market with aggregate demand of around 2mil ETF-POS
terminals each year. According to Payments Security Task Force, a
cross-industry group formed by Visa and MasterCard, expected that at
least 47% of merchant terminals will be enabled for EMV chip
technology by end of 2015 in the U.S. We believe the behind reason is
mainly due to change of the U.S. law commencing in Oct 2015, where
the liability of any frauds will shift from banks to merchants.
Replacement cycle in the U.S. is on-going while potentially there are
another 53% of merchant terminals that needed to be replaced after
2015. We expect PAX’s operations in the U.S. will form a larger scale
and heading toward breakeven in the coming year.

Maintain our Buy rating with target price of HK$9.22. We revise up our
FY14E/15E/16E net profit by 16.0%/18.6%/21.2% to HK$382mn/ 477mn/
597mn. PAX is trading at 17.2x FY15E PER, 35.3% lower than its peer
average. We believe the valuation discount will be narrowed given by
continuous growth in global market share and weaken competitiveness of
competitors. We revise up our target price of HK$9.22, based on 21.3x
FY15E PER, a 20% discount from peers average.
7.36
8,098
1,100
2.71
8.49
23.18
PwC
Major Shareholders
HiSun Technology
(maintained)
Expect Faster Growth in Overseas Markets
Buy (maintained)
HK$N/A
9.22 (from HK$8.89)
+25.3%
Ticker
BUY
33.08%
9.04%
Forecast and Valuation
Year to 31 Dec
Revenue (HK$ mn)
YoY
Net Profit (HK$ mn)
YoY
Basic EPS (HK$)
YoY
P/E (x)
Dividend yield (%)
P/B (x)
FY2012
1,313
19.0%
183
0.6%
0.176
0.7%
39.1
4.2
FY2013 FY2014E FY2015E FY2016E
1,472
2,034
2,505
2,926
12.1%
38.1%
23.2%
16.8%
227
382
477
597
23.8%
68.5%
24.9%
25.3%
0.218
0.347
0.433
0.543
23.7%
59.1%
24.9%
25.3%
32.7
22.3
18.1
14.9
3.6
3.3
2.8
2.3
Source: Bloomberg, CIS(HK) estimate
Sources: Bloomberg, CIS(HK)
Please read the analysts and company disclosure and the disclaimer in the last page
Equity Research Report
Financial Summary
Income Statement (HK$ mn)
Total Revenue
China market
Overseas market
Cost of sales
Gross profit
Other income
Operating expense
Operating Profit
Associates
Finance costs
Income tax expense
Minority interest
Others
Net Profit
EPS
No. of shares outstanding (mn)
Growth y-o-y
Revenue
Net Profit
EPS
FY2012
1,313
919
394
(849)
464
30
(271)
223
(40)
183
0.176
1,038
FY2013
1,472
1,046
426
(931)
541
50
(325)
266
(40)
227
0.218
1,039
FY2014E
2,034
1,224
810
(1,273)
761
58
(372)
446
(65)
382
0.347
1,100
FY2015E
2,505
1,371
1,134
(1,542)
963
70
(476)
557
(81)
477
0.433
1,100
FY2016E
2,926
1,508
1,418
(1,770)
1,156
88
(545)
699
(101)
597
0.543
1,100
19.0%
0.6%
0.52%
12.1%
23.8%
23.65%
38.1%
68.5%
59.14%
23.2%
24.9%
24.86%
16.8%
25.3%
25.34%
Balance Sheet (HK$ mn)
PPE
Others
Total Non-Current Assets
Inventories
Trade and bills receivables
Deposits and other receivables
Cash at bank and on hand
Others
Total Current Assets
Trade payables
Other payables and accruals
Borrowings
Others
Total Current Liabilities
Non-current liabilities
Total Non-Current Liabilities
Share capital
Total reserve
Total equity
Net Cash
FY2012
10
0
10
244
544
10
1,358
26
2,183
225
131
0
27
383
0
0
104
1,707
1,811
976
FY2013
8
0
8
465
638
6
1,698
17
2,824
446
275
0
25
746
0
0
104
1,983
2,087
953
FY2014E
12
0
12
488
883
9
1,826
116
3,322
518
320
0
29
866
0
0
110
2,353
2,464
960
FY2015E
13
0
14
558
1,053
10
2,204
117
3,942
609
376
0
52
1,036
0
0
110
2,812
2,922
1,168
FY2016E
16
0
16
679
1,254
12
2,619
116
4,680
690
426
0
63
1,178
0
0
110
3,406
3,516
1,440
Cash Flow (HK$ mn)
FY2012
Profit before tax
223
Interest income
(11)
Depreciation of PPE
3
Others
(20)
Changes in working capital
(2)
Income tax paid
(29)
Net operating cash flows
202
Purchase of PPE
(3)
Investment in ST bank deposits
Interest received
12
Net investing cash flows
1
Proceeds from issuance of ordinary sharesRepayment of ST bank borrowings
Increase in restricted cash
Net financing activities cash flows
0
Net (decrease) / increase in cash
203
Exchange gains/(losses)
3
Cash at beginning of year
1,152
Cash at end of year
1,358
FY2013 FY2014E FY2015E FY2016E
266
446
557
699
(15)
(18)
(23)
(27)
4
3
3
3
(28)
(34)
(3)
(3)
54
(162)
(88)
(189)
(42)
(40)
(65)
(81)
292
260
385
405
(1)
(7)
(4)
(6)
(100)
15
18
23
27
23
(89)
18
22
8
0
0
0
323
171
403
426
17
(44)
(25)
(12)
1,358
1,698
1,826
2,204
1,698
1,826
2,204
2,619
Ratio Analysis
Profitability
GPM
OPM
NPM
ROA
ROE
Liquidity & Solvency
Current Ratio
Quick Ratio
Cash Ratio
Total debt to equity
Net debt to equity
Working Capital
AR days
Inventories days
AP days
DuPont Analysis
Net Profit Margin
Asset Turnover
Leverage Ratio
FY2013 FY2014E FY2015E FY2016E
FY2012
35.3%
17.0%
13.9%
8.3%
10.1%
36.7%
18.1%
15.4%
8.0%
10.9%
37.4%
22.0%
18.8%
11.4%
15.5%
38.5%
22.3%
19.0%
12.0%
16.3%
39.5%
23.9%
20.4%
12.7%
17.0%
5.7
3.8
3.8
3.8
4.0
5.0
3.1
3.3
3.2
3.4
3.5
2.3
2.2
2.2
2.3
0.0%
0.0%
0.0%
0.0%
0.0%
Net Cash Net Cash Net Cash Net Cash Net Cash
149
118
160
149
139
211
138
137
223
142
124
216
145
127
216
13.9%
0.6
1.2
15.4%
0.5
1.4
18.8%
0.6
1.4
19.0%
0.6
1.4
20.4%
0.6
1.3
Source: Bloomberg, CIS(HK)
Valuation of Peers
Name
Ticker
INGENICO
VERIFONE
FUJIAN NEWLAND
SZZT
SHENZHEN XINGUODU
ING FP
PAY US
000997 CH
002197 CH
300130 CH
PAX GLOBAL
327 HK
Mkt Cap
HK$ mn
43,220
29,866
15,306
5,165
4,556
8,098
Last Px
(Local Cur)
78.58
34.05
23.65
15.59
31.43
Simple Avg.
7.36
Current
28.7
N/A
45.4
61.6
59.0
48.7
23.2
P/E ratio
FY2014E
23.8
22.9
37.2
41.0
78.6
40.7
21.4
FY2015E
19.5
17.2
27.2
30.4
38.8
26.6
17.2
P/B ratio
(x)
5.1
3.6
7.1
3.8
3.3
4.6
3.5
ROA
(x)
6.3
(9.1)
6.6
4.0
4.4
2.4
9.0
ROE
(x)
18.6
(24.4)
14.3
6.8
5.4
4.1
11.6
Gearing
(x)
2.7
2.6
2.2
1.6
1.2
2.0
1.3
Source: Bloomberg, CIS(HK) estimate
Please read the analysts and company disclosure and the disclaimer in the last page
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Equity Research Report
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