FY15E guidance intact: 10%/30% YoY sales growth in China/Overseas, with accelerated product rollouts and market coverage.
Catalysts ahead: M&A in 2H15, multilane order wins, and sharegains with new wireless POS launch in China.
Maintain BUY with TP HK$12.4, based on 20.5x ex-cash P/E.Stable China growth back on track in 2H15Mgmt reiterated China FY15E sales guidance of 10% YoY (vs 0% in1H15), driven by share win-back from Chinese peers with new lower-ASPwireless POS product (launched in July) and stronger demand in 2H15on seasonality. Looking ahead, PAX expects healthy sales growth of 10-15% YoY in China, given continued replacement demand fromfeatures/security standards upgrade in tier-1/2 merchants and increasingmPOS penetration in micro-merchants. We expect PAX’s China sales togrow 18% YoY in 2H15, followed by 12.7%/12.6% in FY16E/17E.
Stronger products/execution in US/Brazil/Italy bearing fruitsFollowing strong momentum in Brazil/Africa/Middle East last year, PAX isset to accelerate expansion in selective underpenetrated markets. Mgmtexpects major breakthroughs in US (mkt size: 2.2mn) with 100%+ YoYsales growth in FY15E, on the back of EMV migration, stronger salesteam, upgraded products (mulitlane) amid Verifone’s weakness. ForBrazil (mkt size: 2mn), mgmt expect EFT-POS to ramp up in light ofmPOS‘s success. For Italy (mkt size: 250K), PAX will capture No.2position (20% mkt share) following strategic acquisition of PAX Italia.
Reiterate BUY as growth story remains intactPAX’s stock experienced a sharp correction in past two days due tomarket concern about potentially muted China growth after flattish salesin 1H15. We expect share price to rebound soon on its 2H15 outlook andpositive progress in overseas market. We maintain BUY with TPHK$12.4, based on 20.5x FY15E ex-cash P/E. PAX now trades at 13.3xex-cash FY15E P/E, 40%/78% discount to global peers/ A-share. Keyrisks include weaker China sales, product launch delays and M&A failure.