Ready to take on Verifone and Ingenico in U.S. market with newlyrollout multilane terminals PX5/PX7
Positive on FY16E overseas growth (CMS est. +27%YoY): U.S. salesto double, APAC to remain strong, Middle East leadership to maintain
Maintain BUY with TP HK$12.0, based on 15.5x FY16E ex-cash P/Eplus HK$2.63 cash
Multilane products rollout marks a major breakthrough in U.S.
PAX announced in analyst briefing held on 22 Jan that its high-end multilaneterminals PX5/PX7 shipment will commence next week with first batch of 1,000units per week to a tier-1 merchant in U.S. Management is confident to achievetriple-digit growth in sales (in U.S. market), backed by its salesforce expansionplan – doubling sales and marketing team size from 65 to 130 in FY16E. Webelieve the multilane terminals rollout marks a major breakthrough in the highlyconcentratedmarket (Verifone + Ingenico = 85% of market share in U.S.) and weare positive on PAX to gain shares from the top-2 players given PAX’s edges on1) shorter time-to-market, 2) flexible web-based integrated platform for centralizedterminal management 3) most cost-effective and secure payment solutionresulting in better margins for acquirers. We estimate multilane ASP to rangefrom US$300-500 with GPM at 50% or above (vs. CMS est. FY15E GPM of38%). We expect U.S. sales contribution to be 4%/6%/8% in FY15E/16E/17E.
Robust overseas growth remains intact
Apart from U.S., PAX believes sales growth in other overseas regions will remainstrong in FY16E. For APAC region, although China market remains a concerns(CMS est. +9.6%YoY in FY16E), PAX sees sales picking up in other countriesincluding Malaysia/Indonesia/India. While for Middle East, PAX is confident tomaintain a leadership position with market share >15% (vs. No. 1 Verifone shareat 16%). We estimate overseas sales growth of +27%YoY in FY16E with salescontribution of over 53%. For currency concerns, PAX expect benefits from USDdenominatedoverseas sales to offset sales weakness in China amid RMBdepreciation, and thus overall impact will be minimal.
Maintain BUY with TP of HK$12.0
Trading at 7.2x ex-cash FY16E P/E, 54% discount vs. global peers, the stock isoversold and we maintain BUY with TP of HK$12.0, based on 15.5x ex-cashFY16E P/E plus HK$2.63 cash. Our TP implies 24% discount to global No. 1Ingenico given higher sales exposure in China and lower recurring income.Downside risks include product launch delay and weak China sales.