NDR takeaways: Solid expansion roadmap; M&A on track
US market: strong EMV/NFC upgrade cycle, multilane shipmentsin FY16E; China market: product innovation to enhance leadership
M&A pipeline: Focus on Gateway/Software/Distributor forrecurring income, transaction data, and broader sales network
Maintain BUY with roll-over TP HK$12.0 (15x FY16E ex-cash P/E)
2015-16 time to bear fruits in the high-margin US market
Driven by 1) Extended EMV migration cycle: 7mn merchants upgradingPOS terminals in next three years; 2) Mass multilane product rollout inFY16E: running pilot programs with top-tier acquirers, and 3) Rising tideof mobile payment: apart from Apple Pay, Google-backed Android Payand Samsung Pay are officially launched, Mgmt believed POS terminalupgrade demand remains robust in US in FY15E-17E. PAX targets 100%YoY sales growth in FY15E amid Verifone’s (PAY US) weakness.
Eyes on overseas M&A and new product launch in China
More M&A along the payment value chain are arriving with PAX’sHK$1.6mn cash on hand. Gateway/ Processor, a portal betweenmerchants and card network, are key M&A targets as they providetransaction data and recurring income to PAX. Notable examples ofGateways include PayPal in US and Worldpay in Europe (acq. priceoffered by Ingenico: ￡6.6bn). Product launch in China is another catalystapart from M&A. In view of emerging 3rd-party acquirers and QR-codepayments, in addition to upgrading existing products with QR-code reader(wireless POS/mPOS), PAX is developing value-enhanced Smart POSand Cloud POS (with ERP/CRM system incorporated) targeting small/midmerchants. Bank card clearing market opening up is another positivedriver ahead to fuel upgrade demand (verified by Visa/MasterCard).
Attractive FY16E P/E with 45% discount to global peers
We roll over our target price to FY16E at HK$12.0, based on HK$2.63cash and 15x FY16E ex-cash P/E (20x FY15 P/E previously), which is10% discount to global peers’ avg. on lower recurring revenue and Chinaeconomy uncertainties. Key catalysts include M&A, US multilane orderwins, product launch in China and wider adoption of mobile payment.Risks include product delays, weaker China market and M&A failure.