Solid 1Q16 sales growth (+13.3% YoY) with improving sales mix(c. 57% from overseas, vs 47% in FY15); Margin expansion story remain solid with 15%/19% revenue/ net profit CAGR in FY16-18E
Share gains to continue in EMEA (Italy direct sales ramp-up),APAC (mPOS in India) and U.S. (multilane products roll-out)
Strong product portfolio: D820 (Tablet ECR), D220 (mPOS), A920(Mobile Tablet), Q80 (Indoor Portable); Retain BUY with TP HK$10.04
1Q16 rev in-line, overseas growth offsetting China weakness
PAX Global announced in-line 1Q16 sales of HKD672mn (+13.3% YoY),tracking 20% of our FY16E estimates (vs 21% in FY15), mainly driven bystrong overseas markets (+24.5% YoY) offsetting soft China market(+1.3% YoY) on RMB depreciation. Excluding RMB currency impact (-5.9% YoY), 1Q16 China revenue would grow at 7.2% YoY despitecontinued pricing pressure.
Higher overseas exposure likely to benefit margin
We are encouraged by PAX’s continued share gain in overseas marketsespecially in 1) EMEA (+31%YoY) on Italy direct sales ramp-up/ high-endmobile terminals deployment in Germany and Eastern Europe, 2) APAC(+58%YoY) with mPOS selling well in India and 3) U.S. (+248%YoY) onmultilane products roll-out. For LACIS market, revenue was down by32%YoY due to mPOS order delay in Brazil, but mgmt. expects revenuegrowth to resume in 2Q-3Q. We are positive on PAX’s overseas marketexpansion with sales contribution climbed to 57% in 1Q16 (vs. 53% in1Q15) and expect the mix change to benefit margins. Regardingconcerns on RMB depreciation, although top-line China sales is affected,bottom-line impact is limited as 70% of costs are incurred in RMB.
Maintain BUY on accelerating overseas expansion
We remain positive on PAX for the multi-year growth story in overseasmarket (esp. US, EMEA and APAC) with innovative and competitiveproduct (FY16E: A920 mobile-tablet terminal). We retain BUY andunchanged TP of HK$10.04, based on 13x ex-cash FY16E P/E (7%discount to peers) plus HK$2.43 cash. Catalysts include recurring servicerevenue from M&A, multilane order wins in U.S., order wins in Europe.PAX is now trading at 7.3x ex-cash P/E (48% discount to peers).