Global share gain (take over #2 Verifone in 3 years) and marginexpansion story (GPM +1.2ppt) remain solid with FY16-18E revenue/net profit CAGR of 15%/19%
Overseas growth intact (US multilane/ Brazil mPOS/ Italy M&A inEurope) but Apple Pay in China may not help easing slowdown
Cut FY16-17E EPS by 6-7%; Retain BUY with new TP HK$10.0
FY15 Rev in-line, NP beats mainly on VAT refund/ tax credit
PAX posted strong FY15 NP at HK$621mn (+58%YoY), beating our/consensus est. by 9%/4% given 1) 21% revenue growth to HK$2,871bnwith overseas sales growth at 36%YoY (vs. our est. +30%YoY), 2)improved GPM to 38.1% (vs. 36.4% in FY14) given higher overseassales contribution at 47% (vs. 42% in FY14) and 3) VAT refund/ tax creditof HK$103mn (vs. HK$52mn in FY14). Excluding non-recurring items, weestimate that PAX’s FY15 NP was up by 40% YoY to HK$550mn.
Overseas growth intact but China slowdown is a concern
We reduced our FY16E revenue/net profit by 2%/6% due to 1) LowerChina sales growth to +4%YoY with ASP/shipment decline/growth of -3%/+9%YoY while overseas sales growth remain strong at +27%YoY,mainly in U.S. (multilane), Brazil (mPOS) and Europe (Italy M&A rampup),2) More conservative GPM at 38.5% (vs. 38.1% in FY15) givenmargin pressure in China market and 3) Increasing R&D expense ratiorelated to smart-POS/ android-POS software development. Addressed inanalyst briefing, PAX targets to achieve 15% revenue CAGR with 15%POS terminal market share (vs. 9% in FY14), shifting focus to overseasmarket (revenue contribution >50%) in FY16-18E. We expect PAX’sFY16-18E revenue/net profit CAGR to be 15%/19%.
Valuation attractive; Maintain BUY with new TP of HK$10.04
We slightly reduced our FY16-17E EPS by 6-7%, and our new FY16EEPS is 4% below consensus. The stock is now trading at 9.7x FY16EP/E, 35% discount to global peers. We retain BUY with new TP ofHK$10.04, based on 13x ex-cash FY16E P/E (15% discount to peers)plus HK$2.43 cash. Potential upside comes from NFC-enabled POSupgrade in China (Apple Pay/Samsung Pay/Huawei Pay), recurringrevenue from M&A, and multilane order wins in U.S.