PAX Global (0327.HK) is a leading company in the domestic POS machine industry. The company has more than 10 years of POS machine R&D and operating history. Its domestic sales and service targets include China UnionPay, Bank of China and China Construction Bank, and other financial institutions. 2011 The company achieved an annual revenue of 1.10 billion Hong Kong dollars and a net profit of 1.82 billion Hong Kong dollars, a year-on-year increase of 52.5% and 25.0%, respectively. At the same time, the proportion of overseas income in the company’s total revenue has reached 32%. In the ranking of global POS machine company shipments by international research organization Nilsen, PAX increased from 7th in 2010 to 4th in 2011.
The domestic POS machine industry as a whole maintained a rapid development, while still has vast room for improvement. In recent years, the amount of bank card issuance and credit card amount have been rapidly increasing, which has led to an increase of nearly 8 times the number of connected POS machines in China compared to ten years ago. According to Nilsen's statistics, in 2011, shipments of POS machines in the Asian market reached more than 6 million units, and the shipment ratio in the international market reached 38%. However, the current domestic POS machine coverage rate is less than 20, only 15% of developed countries. It is expected that in the next few years, the annual output of POS machines in developed countries will remain at around 5%, and shipments from developing countries such as China, West Asia, and Africa will remain at more than 20%.
The POS industry has strict certification standards and technical barriers. Although POS machines do not belong to sophisticated technology in terms of software development, hardware production, and system integration, but they involve financial payment in the banking system, they still need to have high safety standards, compatibility, and reliability. Products need to go through several years of international and domestic safety certifications and tests before they can enter the bidding scope of financial institutions. Therefore, it is required that enterprises must have sufficient operating history, performance scale, and comprehensive strength to form a high threshold for potential entrants. At present, the top five POS machine manufacturers headed by PAX Global have steadily occupied over 80% of the market share.
The emphasis on and investment in R&D ensured the company's leadership in product technology. Since the production process has been outsourced, PAX has been focusing on and investing in R&D for many years. The company’s R&D expenditure has been growing steadily. At the same time, R&D personnel account for over 54% of all 500 employees. Of the 51 new employees this year, 46 are in R&D positions, which ensures that the POS products are technologically advanced.
ï® The company has been a strong contender for CUP POS machine bidding for many years in a row. This trend is expected to continue in the future, so as to obtain stable domestic revenue expectations. We expect PAX Global's 2012 full-year revenue and net profit will maintain a slight positive growth, and the proportion of overseas income will continue to increase. The company’s current net book cash is close to HK$1 billion, while the market value is only HK$1.38 billion, which corresponds to 6.8 times P/E in 2013. It is recommended to “buy†and the target price is HK$1.95, which represents a 43.4% upside from the current price. P/E 10 times in 2013.
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