PAX Global (0327.HK) - An Undervalued Chinese POS Manufacturer with Significant Growth Runway in Emerging Markets


This month, we decided to do a more in-depth dive into a Hong Kong-listed company due to its significant exposure to emerging markets. The time of recording was on 1 November 2022.


PAX Global (0327.HK, “PAX”) is the second largest point of service (“POS”) supplier in the world – it supplies the physical hardware that collects the digital payments that are becoming increasingly common in our daily lives. The company is the number one supplier in rapidly growing emerging markets, such as Latin America, the Middle East, Africa, and developing APAC.


Podcast version also available on Spotify

PAX essentially operates as an R&D and wholesale outfit, primarily outsourcing manufacturing. This focus on R&D allows the company to keep abreast of the latest technological (e.g. contactless, QR codes, and biometrics) and regulatory dynamics (e.g. security, financial compliance, and data management) driving demand for payment terminals.

These developments mean that selling hardware such as payment terminals is by no means a one-off sale. In fact, merchants usually need to replace terminals every 3-5 years as the aforementioned technical and regulatory dynamics necessitate upgrades.

PAX benefits directly from the global shift to cashlessness. While this trend is well underway in developed markets, we are only seeing the beginning of this shift in emerging markets. Throughout the world, this global shift to cashlessness is mostly motivated by greater efficiencies in tax collection, combating crime, data collection, and as well in labour and accounting. This trend has only been accentuated by the COVID-19 pandemic and a heightened reluctance to handle cash. The trends driving pro-cashless policy are particularly pertinent in emerging markets, where governments grapple with a narrow tax base, money laundering, and corruption, and are generally encouraging a shift towards digital payments.


In terms of guidance, PAX is projected to achieve at least 15% YoY growth for FY22e and has traditionally been conservative in its estimates. We think there is a good chance for a surprise (beat). Notably, PAX did mention that 60% of their sales are now coming from the more sophisticated Android smart products, which are more profitable than traditional products, so this is helping drive a higher margin. PAX has a strong track record of capturing market share over the past several years to become the second-largest global player in a growing industry, which has yet to be reflected in the stock price today.


As for competitors, based on average consensus estimates on PAX, the stock is very cheap when considering its current earnings and growth trajectory. As mentioned in the video presentation/podcast, PAX presents one of the few proxies into the global POS market. PAX is the only listed company out of the other two top global POS producers (Ingenico and Verifone), which are no longer listed due to M&A activity. The other listed mainland Chinese companies are primarily concentrated in the highly competitive and low-margin China market, which PAX has pivoted away from. The necessary R&D capacity to keep abreast of the aforementioned regulatory and technological developments across varying markets presents a significant barrier to entry for PAX’s China-reliant peers.


Our target range for PAX’s stock is HKD 9.00-12.00. However, our view is that the stock could trade higher, due to several potential catalysts, such as faster-than-expected adoption rate of its new Android terminals, overseas expansion exceeding growth expectations, continued share buybacks and dividend increases. We do see risks in the business, such as a slower adoption rate of PAX’s products and services, a slower-than-expected sales growth and margin compression, and a failure to maintain an adequate dividend payout.


For further details on our deep dive on PAX, please refer to the video presentation, podcast or slides.

Pax(327hk) P&p Analysis 011122
2.3MB ∙ PDF file

Click “Download” for a copy of the full PowerPoint presentation. Video time-stamps available if you want to skip to a specific section of our analysis.

If you are interested for a copy of the detailed financial model, please like, subscribe, and comment (to request for it), and will send that across.

Full disclosure: Both me @TheAltraman and @Desertfox currently own the stock.

Disclaimer: This presentation is for information purposes only. It is not intended as advice or a recommendation to conclude any transaction and should not be treated as such. It should not be construed as an offer to sell or the solicitation of an offer to buy any security or financial instrument in any jurisdiction where such an offer or solicitation would be illegal. This presentation is not intended to be published or made available to any person in any jurisdiction where doing so would result in violation of any applicable laws or regulations. The information contained in this presentation is not intended to provide professional, investment or any advice or recommendation and should not be relied upon in that regard. This presentation does not take into account the investment objectives, financial position or needs of any particular person. Before acting on any information in this presentation you should consider whether it is suitable for your particular circumstances and you should consult your own legal, financial, tax, accounting or other professional advisors to ensure that any decision made is suitable to your investment objectives, financial position and any other relevant circumstances. The assumptions and parameters used are not the only ones that might reasonably have been selected and therefore no guarantee is given as to the accuracy, completeness, or reasonableness of any such quotations, disclosure or analyses. No representation or warranty is made that any indicative performance return indicated will be achieved in the future. This presentation is derived from information, which includes information prepared by Pyramids and Pagodas. None of the persons involved in Pyramids and Pagodas, gives any representation or warranty as to the reliability, completeness, timeliness, accuracy, or fitness for any purpose of this presentation, nor does any of them accept any responsibility or liability for any loss or damage arising in any way (including by reason of negligence) out of errors or misstatements in, omissions from, or the reliance of any person on, here.

Share Pyramids and Pagodas

Follow us on Twitter