Several Chinese banks announced to launch Apple Pay on 18 Feb,following UnionPay’s aggressive push of its NFC Quickpass terminals
Apple/Samsung Pay launch in China is a major catalyst for PAXgiven stronger upgrade demand from rising mobile payment trend
Maintain BUY with TP HK$12.0, based on 15.5x FY16E ex-cash P/Eplus HK$2.63 cash
UnionPay poised to gain share in China mobile payment marketFollowing China UnionPay’s previous announcement in Dec to launch Apple Pay/Samsung Pay in early 2016, news media (e.g. Sina news) reported that severalmajor Chinese banks, (e.g. ICBC, Guangfa Bank and Construction Bank), willofficially launch Apple Pay on Feb 18. In addition, PAX Global announced toestablish a partnership with Samsung to implement ‘Samsung Pay’ in all its POSterminal products. We believe introduction of NFC-based Apple Pay and MSTbased Samsung Pay in China will boost mobile payment adoption in China.China’s mobile payment market is now dominated by QR-code based solution(AliPay/ TenPay), due to their easy-of-use, lower installation/transaction cost andstrong marketing capability. However, we believe government-backed UnionPayis set to boost its own NFC-based mobile payment solution in near future,accelerating the upgrade demand of NFC-enabled POS terminals.
Positive to PAX: strong NFC products and UnionPay key supplierWe believe the adoption of Apple/Samsung Pay in China is positive to PAX, asPAX is the first Chinese POS vendor approved by Apple Pay and 2nd largestPOS vendor in China (mkt share ~25%). PAX debuted its Apple PAY solution withCCB and UnionPay in early 2015, and 70% of PAX’s China shipment is nowequipped with NFC. Being the major supplier for UnionPay's Quickpass terminals,we believe PAX will benefit from UnionPay’s aggressive push of its NFC-basedmobile payment solution. China UnionPay is the largest 3rd-party acquirer inChina (30% share in 2013), with 5mn+ Quickpass installed base at 10,000+locations of 25 franchise chains in China, including Carrefour, McDonald's,Watsons, FamilyMart, COSTA).
China demand (NFC/SmartPOS) better than feared; Retain BUYOur conservative estimate for PAX's China business is 10% sales CARG duringFY15-17E, vs 27% sales CARG for overseas market. Trading at 9.4x ex-cashFY16E P/E, 36% discount vs. global peers, we think current valuation is attractivegiven China NFC/SmartPOS adoption, multilane order in U.S., and recurringsales from M&A. We maintain BUY with TP of HK$12.0, based on 15.5x ex-cashFY16E P/E plus HK$2.63 cash. Downside risks include product launch delay,weaker China sales and M&A failure.