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Pax Global $HKG: 0327
Disclaimer: These are just my personal notes uploaded. I am sharing them here for anyone interested, however, some parts may not be understandable to others, or could be outdated or inaccurate. Despite this, I hope that these notes offer some value and that someone finds them useful!
PAX Global Technology Limited, an investment holding company, engages in the development and sale of electronic funds transfer point-of-sale products worldwide.
Its E-payment terminal products include:
- Smart E-payment solutions,
- Smart electronic cash register solutions,
- Unattended solutions,
- Smart PayPhone and PayTablet solutions,
- Classic E-payment solutions,
- Other accessory items.
The company also develops PAXSTORE, a cloud-based platform that allows users to create and manage their own independent white-label marketplace for software application distribution; paxRhino, a key injection service; and CyberLab, a payment application cloud test platform that provides professional one-stop online debugging and testing services. In addition, it offers payment solution services and maintenance and installation services.
# News / Events
- Construction Contracts for the PAX Smart Terminals Industrial Park Project
PAX Smart Terminals Industrial Park Project (the “Industrial Park Project”). The construction work of the Industrial Park Project, as funded by internal financial resources of the Group, is underway. Due to the interruption of construction process under the COVID-19 pandemic, the expected completion of the Industrial Park Project is extended to the fourth quarter of 2023 the earliest. → Expected commencement of production: 2nd quarter of 2024 the earliest
- Expected additional annual production capacity At least 10 million units (in 2021 they had capacity for 12 million)
- Liquidation of Shanghai Kashuo
Should Shanghai Kashuo liquidate, the Group is expected to recognize a potential gain of up to approximately HK$60 million in reversal of its existing liabilities.
- Oct 26th, 2021, the FBI raided Pax’s Florida facility. → Seems like it was nothing
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# Macro
- 🌎 Contactless Payment Terminals Market CAGR 25.86 % between 2018 – 2028
- 🌎 Global outdoor payment terminal market CAGR 8.7% from 2022 to 2030
- 🌎 Global point-of-sale terminal CAGR of 8.3% from 2023 to 2030
- 🌎 Global point-of-sale terminal CAGR of 9.2% from 2022 to 2031
- 🌎 Irreversible development of global cashless societies has been fueled.
> The ongoing industry shift from legacy payment terminals – running on Linux and proprietary operating systems – towards new generation of Android smart payment terminal solutions, as well as initiatives by national governments and financial institutions to encourage cashless societies, have promoted rapid advances in electronic payment acceptance technology and further adoption of more software applications and value-added services at the retail level. These are the key factors propelling merchants to accelerate the deployment of Android smart payment terminal solutions.
# Business
- PAX has its subsidiaries in the USA, Italy, Japan, and India.
- 📖 Approximately 50% of the employees are research & development engineers.
- 📖 Terminal’s replacement cycle takes place every 5–7 years
- 📖 Android products sell at higher prices than the traditional ones
### Sales by Geographical Region
- Latin America and the Commonwealth of Independent States (“LACIS”)
- 40% of sales
- +12.9%
- Europe, the Middle East and Africa (“EMEA”)
- 34% of sales
- +62.2%
- Asia Pacific Region (“APAC”)
- 14% of sales
- +3.5%
- United States of America and Canada (“USCA”)
- 12% of sales
- +27.2%
### Sales by Product Category
- Sales of E-payment Terminals products
- 98% of sales
- +26.5%
E-payment Terminals products include Android smart E-payment solutions (A-series), Android smart electronic cash register solutions (E-series), unattended solutions (IM-series and SK-series), Android smart PayPhone and PayTablet solutions (M-series), classic E-payment solutions and other accessory items.
- Provision of services
- 2% of sales
- +6.7%
Services income mainly consists of income generated from the provision of maintenance and installation services and the payment solution services, e.g. SaaS (Software as a Service) solutions.
📖 PAXSTORE ecosystem: payment, ordering, ticketing, inventory handling, marketing & loyalty initiatives, tax refunds, etc
# Management
- Mr. Nie Guoming [Chairman & General manager of Pax Computer Technology] → 13yrs &
0.39%
He is responsible for the overall management and strategic development of the Company and its subsidiaries. He joined Pax Technology Limited (“Pax Technology”) at its founding in March 2000 as the vice president until January 2001 and subsequently as the president prior to his appointment as the chairman in June 2010.
- Mr. Lu Jie [Chief Executive Officer] > 9.75yrs & 0.82%
Responsible for managing the business development, sales and marketing functions of the Group.
- Mr. Li Wenjin [Executive Director of the Company] -> 0.27%
He is responsible for the Company’s risk management and treasury management and overseeing operations of Pax Technology, of which he has been serving a director since April 2000.
✅ Management tends to be conservative → Pax always beats guidance
# Opportunities
- 💡 AX Smart Terminals Industrial Park Project in Huizhou → Will substantially increase production
- 💡 Paxstore increases value for customers and creates switching costs + recurring revenue
# Advantages
✅ Aggressive share buyback (under fair value)
✅ Market share 11.5% (third-greatest player)
✅ Regulated sector → Entry Barriers
- Local certifications are required. There are only 3 international players: Ingenico (20% market share), Verifone (16% market share), Pax Global.
✅ Change Costs + Semi-recurring Income. The PAX software platform encourages people to buy the same brand again. This combined with the 5-7 year replacement period results in semi-recurring income.
✅ Strong investment in R&D.
- ~50% of employees are research and development engineers.
- The slight worsening of operating margins was due to an increase in R&D spending.
# Risks
- ⚠️ Diluting the shareholders (although very little) by the exercise of options → the maximum dilution in case all the options were exercised would be 7.5%
- ⚠️ Hi Sun Technology (China) Limited has 33% of the company → There may be a conflict of interest for minority shareholders → They were the owners of Pax Global and carried out the IPO of the company.
- ⚠️ Danger of customer concentration. → ~45% of sales come from a single customer. This distributor operates in LATAM and is an exclusive client of PAX.
- ⚠️ Loss of Market Share in China → The board has decided to compete in more profitable international markets. Currently the most important market is Latin America.
- ⚠️ Danger of “commoditization”.
- Currently PAX is able to sell its products at a higher price than its competitors due to the high barriers to entry and the importance of security. However, in regions like China (where regulations are more lax), the benefits of this market have eroded due to high cost competition.
- ⚠️ Danger of disruptive competitors
- Square: The idea is that when the Square’s merchants and the cash app users transact with each other, they cut out the middleman (Visa and Mastercard).
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