Acquisition to create opportunities for PAX to penetrate into GlobalPayments' ~2.5mn combined merchants globally
Multiple growth drivers in the U.S.: EMV/NFC upgrade cycle,multilane shipments in FY16E, mPOS pilot program with tier-1 merchant
Maintain BUY with TP HK$12.0, based on 15.5x FY16E ex-cash P/Eplus HK$2.63 cash
Deal is positive for PAX to expand its US distribution network
US payment processing company, Global Payments (GPN US), announcedto buy smaller rival Heartland Payment Systems (HPY US) for US$4.3bn,aiming to create cross-sell opportunities of HPY's POS/ solutions and expandinto mid/small-sized merchants and new verticals in the U.S. Heartland iscurrently one of PAX’s two major customers in the U.S., and we believe thisdeal is positive to PAX’s overseas sales network given the cross-sell potentialto the larger combined acquirer in the U.S. (6th largest post deal-close).
Industry consolidation to boost PAX's market share in the U.S.
We believe this acquisition aligns with industry consolidation trend amidproduct upgrade cycle (EMV/mobile payment) and Global Payment’s growthstrategy (20+ deals in past 15 years). For PAX Global, it first entered U.S.market in 2008, and received product certifications from Heartland in 2013.We believe 2016-2017 will be the time for PAX to bear fruits in the U.S.. Weestimate US shipments (131k units) account for 4% of PAX’s total shipmentsin FY15E, and will be tripled to 390k units in FY17E, driven by 1) newpartnership with 2 top acquirers in U.S., including Total System Services(TSYS US) and Heartland Payment, and 2) all-in-one multilane terminals tocommerce shipments in FY16E, with ASP (USD300-500) double of traditionalPOS terminals. After the deal, Global Payment will capture 8% volumemarket share of US acquirer/processor market (vs. 3% of Heartland),according to Nilson Report. We believe it will provide PAX Global with crosssellingpotential to Global Payment and accelerate share gain in US market.
Maintain BUY with TP of HK$12.0
We maintain BUY with TP of HK$12.0, based on 15.5x ex-cash FY16E P/Eplus HK$2.63 cash. Our TP implies 11% discount to the average of its globalpeers given higher sales exposure in China and lower recurring income. Wethink current valuation of 10.3x ex-cash FY16E P/E is attractive given Chinasmart POS adoption, multilane order in U.S., and recurring sales from M&A.