Pax global 2021 interim result transcript

Company Name: PAX Global
Company Ticker: 327 HK
Date: 2021-08-12
Event Description: S1 2021 Earnings Call
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
YTD Change(%): 36.192
Bloomberg Estimates - EPS
Current Quarter:
Current Year: 1
Bloomberg Estimates - Sales
Current Quarter:
Current Year: 6605
Page 1 of 14
S1 2021 Earnings Call
Company Participants
• Calvin Pei, Assistant Vice President of Corporate Strategy & Finance
• Shi Yeung Cheung, Chief Financial Officer & Joint Secretary
• Guoming Nie, Chairman and Executive Director
Other Participants
• Analyst
Presentation
Calvin Pei, Assistant Vice President of Corporate Strategy & Finance
Good evening, ladies and gentlemen. Thank you for standing by. Welcome to PAX Global Technology 2021 Interim
Results Conference Call. I'm your host today Calvin also responsible for Investor Relation at PAX. Joining me on the
call today, are our Chairman, Mr.Guoming Nie; and our Chief Financial Officer, Mr.Shi Yeung Cheung.
If there are any technical issues occur during this call, please use the dial-in numbers provided on the registration
confirmed the email and continue to join the conference. All participants will be in a listen-only mode during the
company's presentation. Throughout this conference call, the company will be sharing financial highlights and targets.
After the financial targets, there will be a question-and-answer section. You will use the raise hand function at the
bottom of the platform, and we will unmute your microphone to ask questions.
Before proceeding, let me mention that any forward-looking statements included in the presentation are mentioned on
this call are based on current available information, assumptions and projections about future events. You are cautious
not to place undue reliance on these forward-looking statements. Actual results could differ materially from those
contemplated by our forward-looking statements. Reported results should not be considered as an indication of future
performance.
Now, please turn to Page 3 of the presentation. This is the agenda of the call today. Now, may I invite our CFO, Mr.Shi
Yeung Cheung to share our interim financial highlights in 2021.
Shi Yeung Cheung, Chief Financial Officer & Joint Secretary
Good afternoon, good morning, everyone. Thank you for participating in the call. And also thank you for your
continuous support to PAX Global. 2021 interim results, again PAX achieved solid performance. Since our listing in
2010 for 11 consecutive years, no exception, our interim revenue grows. The group's revenue increased by 30.6% to
HKD3.3 billion, mainly driven by the strong growth in two international regions, EMEA and USCA and of course, our
Android products.
Gross profit margin dropped slightly to 40%, mainly due to the effect from the renminbi appreciation and also slightly
affected by the increased material cost. Net profit increased substantially by 34.4% to HKD519 million. As we always
communicate with the market, as time passes, our brand recognition will be stronger, our R&D competitive advantages
will be more apparent and our global market share will be leading. 2021 interim is another perfect example, and more
will be coming. While we're delivery strong business performance, we have also been producing more shareholder

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 2 of 14
returns.
In the past few years, we made it very clear that we would deliver more values to our shareholders. This time, we
substantially increased our interim dividend by 71% to 12 HK cents per share. I believe the market also noticed our
payout ratio has been increasing for the past few years. The dividend payout ratio in this interim period increases to a
25.5%. We also did a share buyback twice. We want to respond and remind the market here is our priority to create
more shareholders values in the future. Well, in order to have remarkable performance and more shareholder returns,
the market is the fundamental element.
Now I want to give you more colors on our regional markets performance. I want to start with two number one. The first
number one is in Latin America. PAX's continues to be the absolute number one in Brazil, and the sales in Brazil
continues to grow steadily. The second number one is in APAC. PAX has become the largest number one terminal
supplier in India. In this first half, PAX has doubled the sales revenue in India. On top of that one of our key Indian
clients is preparing to go public. This is a very good news to our Indian market. We are happy to see more customers to
step out like the Indian clients, I just mentioned and also our Brazilian listed clients. PAX will continue to be their
strong support.
In the EMEA region, strong growth over 60%. A major breakthrough in Africa. As we mentioned before, PAX has been
dedicated to building our brand and network in Africa. And we are excited to tell in 2021 interim, our revenue in Africa
exceed HKD200 million mainly contributed by two countries Nigeria and Egypt.
In US interim period, amazing growth over 70%. As we said before, with our PAX smart products and growing brand
recognition in the States, PAX will only be better in the States market.
I want to take this chance to update you one change in our presentation of our reporting. Starting from 2021, we have
changed the geographical regions in our reporting from five to four. We notice that China market has been creating
more and more synergies and interactions with other APAC countries. Therefore, we decide to grouped the China
market performance under the APAC region. As I present to you just now, EMEA and USCA regions have both
remarkable growth. If I need to explain the key reason behind, I can summarize in three simple words. Android smart
terminal.
Now, our Android smart terminal ranks, number one in Europe and in the States. We believe the recognition of our
Android products in Europe and the States will project to the rest of the world. It is just a matter of timing. The first
half, the revenue of Android smart terminal contribute more than HKD1.2 billion, a substantial growth of 86%. As we
said before, Android is the future trend in the payment terminal industry. We were the first mover of this trend, years
ago. Now, we are the leader of this trend. The value of Android terminal is more than payment. Customers, merchants
indeed value the diversified business applications, and to maximize these possibilities of Android, a SaaS platform is
crucial. And this platform is our PAXSTORE.
For the success of any platforms in the world, the key is volume. In mobile phone world the largest is Google play store.
In computer, the largest is windows, and in payment terminals market now, the largest is PAXSTORE. 80 countries
using it, more than 5,000 applications are available and over three million terminals connected to PAXSTORE, is
indeed the largest platform in the payment terminal market. In the first half, our SaaS revenue increased by more than
300% reached the level of HKD20 million. PAX is number one in Android Terminal provider in certain regions, and
also another number one as we are the largest number one platform, We believe together this one plus one, the value is
far beyond two. Android and SaaS trend together with the cashless initiative, present a strong demand for our products.
While we are very optimistic about the future, we also well prepared ourselves to take the challenge on our supply
chain, both in the short run and in the longer-term.
In the short term, facing the issues of components shortage, we have actively managed in three ways. First, leverage our
PAX sufficient financial reserve, we stocked up chips and other components in advance. Second, leverage our strong
R&D capabilities, we optimized our product designs and use the different components with more stable supply. Third
leverage our global leadership position, we strengthened our cooperation with and support to our key suppliers. These
measures have effectively reduce the impact of the components shortage on our production, and gross profit margin.

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 3 of 14
In the long run, in response to the increasing terminal demand in the future, we invested to build an Industrial Park. This
investment decision is definitely and very important strategic move for PAX in the next few years or even longer. The
Industrial Park has two benefits. The main benefit and the first benefit, it will expand our production capacity to over 20
million units. So, you may ask, what does 20 million units mean? It possibly means our annual shipment doubles,
market share doubles and also our revenue doubles. The second benefit, it will enhance our supply chain management.
We'll invite suppliers and manufacturing subcontractors to move into the Industrial Park. By doing this, it not only
permits a more concentrated supply chain, but also puts PAX in an active position to manage the supply chain.
Meanwhile, we will continue to mainly outsource our manufacturing process.
In terms of the location. Well, our Industrial Park is located in Huizhou, Zhongkai High-Tech Zone. For those who are
not so familiar with Huizhou. To the country Huizhou will become an important electronic and information industry
cluster. To PAX, Huizhou has a superior geographical location, it facilities very easy logistics and transportation. And
one more important point, the new Industrial Park is just only one hour drive away from our new Shenzhen
headquarters.
Supply Chain management is definitely an important area for our core competitiveness. It will affect our production and
of course will also affect our 2021 full-year financial targets. We have raised the 2021 full-year revenue target. Taking
into account the factors like robust orders on our hand from our customers, strong potential of Android in the future and
some challenges in our supply chain, and as always adopting a conservative approach, we adjust our revenue targets to
be at least 25% growth.
Meanwhile, there are two temporary factors that will create short-term pressure. Renminbi fluctuation of course is
beyond our control. Material shortage continues to affect different industries. Therefore, we fine-tuned our gross profit
margin and also the operating profit margin targets. For this interim period we really want to have more time to interact
with you, with our valuable shareholders and investors, we have therefore shortened our presentation.
If you have any questions, any areas that you want to explore further, Our Chairman, Mr.Guoming Nie and I would be
more than happy to answer and discuss with you further.
Now I hand over to time to Calvin. Thank you.
Thank you, Shi Yeung, for sharing the interim result highlight in 2021, recent business update and also the financial
targets.
Questions And Answers
Operator
(Question And Answer)
Now, we open the call up to questions. You may use the raise hand function at the bottom of the platform, and we will
unmute your microphone. You may also type out your questions in the chat box. Our first question comes from Addison
Chan. You may proceed.
Analyst

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 4 of 14
Thank you for taking my questions. First of all, congratulations on your interim result. Could you please share more on
PAX current market share and future market share expectations? Thank you.
Thank you. Thank you for the question. Well, in terms of the market share, I think right now, based on the estimate, I
think we are roughly 10% of the world's market share. And for our major competitors, the number one would be around
25%. This is definitely our target in the next few years to push forward our market share from the current around 10% to
15% to 20%.
Our next question comes from Farrukh Edgarov. You may proceed.
Analyst
Hi, Ethan. Congrats on the great results and thanks for your time. Just a couple of questions on my end. Trying to get a
sense of how far along in the cycle are we in terms of the Android sales, maybe you could break it down by region.
That's the first question. And then the second question, so if I'm looking at the basically the revenue breakdown, and if
we look at the Android sales and the rest of revenue, basically, if I understand correctly for the fiscal year '20, the
non-Android sales were roughly flat over the one year period, but then in this first half, they're up about 10% again this
is non-Android sales. So perhaps you could provide a little more color on that, and what kind of growth rates we could
expect for the non-Android sales and maybe or could they potentially be eating away from -- so if the Android sales are
going up, can they potentially be eating away from the non-Android sales? Thank you.
Thank you for the question. Well, first part of that, the Android cycle, this is a very great question. To us, we invested in
Android for many years since 2013 or 2014, so to us the revenue cycle is just beginning. Especially every time for
countries like in North America or in Europe, usually in terms of the maturity of the market, they are more mature and
developed country usually they will lead for any new trend.
And for Android this is a similar case. They are leading the demand or started in the States, and in Europe, and of course
in China as well right now we have a good market share, a remarkable growth happened just in 2020 and of course in
the first half of 2021 as well. So, we expect this trend is just the beginning of the new generation for the changing for
the traditional products to Android.
In terms of region just to give you a overall sense, in the States and also in European countries, I think over 50% of our
sales are actually from the Android products. But as a whole for the whole group it's only 35% now. So what that
means, it means that in the developing countries, for many different reasons, there is still not yet quite get to the trend of
Android. So that's why I said from PAX global perspective, it is just the beginning of the rise of the Android products.
So you mentioned that you try to separate revenue into the traditional and Android streams. As I said I probably think
that, it all depends on the market needs for a market -- for a market like in South America or in APAC in certain
countries, majority of the merchants, they are micro merchants. For example, like they're selling coconut on the beach
for those kinds of shops or of those kinds of merchants, even we give them Android terminals and they will just say, I
want just a simple payment function a small machine.
I think that for these merchants, small size merchants they will continue to exist for I guess for quite a while. So for both
traditional and Android products, I think they will co-exist for quite a long period of time. But I want to emphasize one

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 5 of 14
more point before I go to the next question is right now in terms of the Android products, our PAX competitive
advantage is more than obvious now, we are already selling actively for around 15 different kinds of Android products
in the world. So to us, the competitive advantage of Android is very obvious.
Analyst
Thank you.
Our next question is coming from the chat room. The company's production capacity will nearly double after the new
facility, the Industrial Park. So how about your demand, if you are able to fully sell your terminals with the additional
production capacity.
This is very interesting question. Well, let me share with you the situation that we are in now. Of course, I cannot share
the exact number because it's all related to very sensitive information. But the situation in 2021, the number one
challenge to us is how to manage the supply chain or in other words, how to make sure that we have enough production.
From different angle of this issue is, we have very happy problem, which is we have a lot of orders on our hand from
different parts of the world, but we don't really have enough capacity to entertain all the orders. So this is one of the
reasons why of course, why we need to make a decision to invest, to build larger complex or industrial building to catch
up with the future trend.
And based on the information we have now, of course the orders play a very big part because right now our annual
production is around 12 million which our orders is above that. And we foresee in the next few years to come the order,
the demand for our products will just be going up. So that's why we need to build that industrial park. But if you ask me
what exactly the orders or what exactly the numbers you are foreseeing for '22 or '23, sorry, I don't really have a very
precise number, but I can now for sure that the demand will be higher.
(Operator Instructions) So our next question also coming from the chat room also related to the Industrial Park. So after
the Industrial Park project is complete, will all 22 million units of production capacity, be done in-house or will PAX
use third party producer for a portion of the production?
Thank you for this question. Thank you for giving me the chance to clarify that because in the last few weeks some
shareholders, and investor they called me and just asked whether you want to continue to do subcontracts, outsourcing
model or you want to take up the manufacturing process. The answer is clear. We will keep maintaining our model,
which is mainly outsource, the manufacturing process to the specialists in China.
The logic behind is, we know that for PAX, our DNA is actually in R&D, and in security, in payment design but not
really on the manufacturing process. Also we are lucky to cooperate with our manufacturing partners for quite a while
and we build up the trust. And that's basically no point for us to take up whole manufacturing process by ourselves. But
of course, like what we have been doing for 10 years, we do some small manufacturing process, like manufacturing
some very simple models, but it will only account for a very tiny portion of our overall shipment.

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 6 of 14
Our next question is coming from the chat room is related to the dividend and also dividend payout. So first question is,
any final dividend payout targets? The second question is, will you keep increasing the dividend payout ratio overtime.
So what's your targets for the dividend payout over the next few years. The last question is, do you expect to pay
another special dividend this year?
Guoming Nie, Chairman and Executive Director
(Foreign Language)
Okay. I'm going to do a translation for our Chairman, Mr.Tiger Nie, and Mr.Tiger Nie is going to take this question
about dividend. (Foreign Language)
(Foreign Language)
I believe the dividend from us, the market can see that in the past few years, past period of time, the market can see that
we keep increasing our dividend payout. And at the same time the culture of PAX, we do not easily make our promises
to the market.
(Foreign Language)
Because of the culture that we have, that's why I can't give a very specific number or targets, but I can share with you
the principle of our dividend policy. Well, the principle that we have is, if there is no very adverse or special
circumstances, we have an intention to increase dividend payout ratio. This is a principle how we operate dividend.
Operator
So our next question is coming from the chat room. So it's related to our SaaS revenue and also the service. So can
PAXSTORE be used on a competitor's terminal, so if yes, that doesn't mean your clients can just switch to your
competitors. So, the next question is, in the context of PAXSTORE, so, what further value-added services do you plan
to add in the future?

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 7 of 14
Okay. So the question -- the first part of the question is about the technical issue, whether the other brand name
terminals can connect to PAXSTORE, the answer is yes, technically it works. And I can tell you not a huge volume of
that in 2020, we already got some connections from the non-PAX payment terminals already connected to PAXSTORE.
And does it mean, I'm not sure whether I understand the question, whether do you mean that the people can easily
switch if we can connect to different brands that mean the other platforms can also get our payment terminals, right? I
guess that could be the question.
Of course, the people can choose whatever they want to do. But I'll give you more background or details about, if
PAXSTORE, if other non-PAX payment terminal connected to PAXSTORE. There are certain functions they cannot
fully use first of all due to the technical part and also secondly we also want to maintain an incentive for people to
switch to use PAXSTORE and also together with the PAX Android terminals. So I guess probably the same happens to
competitors.
If you look at the basic value why people need to use PAXSTORE is all about the volume and the network. For example
like if one customer gets PAX payment terminal and together with a powerful PAXSTORE, they can unlock the whole
value package of having the two together. So if they enjoy the values, I guess there is just no point for them to switch to
another competitor. Of course you technically can switch but it's not that easy in reality, because, if there's some
functions that you are using, it's really hard to switch that, just like mobile phone. Technically, you can switch to other
brand name but it actually takes some time or maybe some barriers, if you enjoy what you are using the total package
that we are offering to our customers, I think the possibility for people to switch is not that high.
Okay. There is the third part of the question. What further value added service we plan to add in the future? Well I mean
the whole principle or maybe put it this way, why people can get from the Android is try to automate the different
operations. So whatever ordering incentive automatic marketing programs, we are all talking about optimizing the
whole processes and also try to minimize the human intervention or human cost.
So from this angle, the few functions that are already mentioned, marketing, ordering, membership programs, they are
all the functions that we are offering to them. But if we look at a one step further, we are actually developing or maybe
already developed some apps which help our customers to do some algorithm, calculation, and to try to understand the
customers behavior with just a very simple payment terminal they can do all the things in that payment terminal,
understand customer behavior, this is something that we are working on. And there's some customer already using these
apps. I think this is something both in the practical viewpoint and for future application. I think this is the direction
we're working on.
So our next question is coming from the chat room there's two different questions. So, first of all would be regarding the
revenue target which is about 25% growth from which area is the growth expected to coming from. And the second
question is related to the Industrial Park, so, the additional capacity which we will focus on smart terminals or will it be
in line with the current mix?
Well, this is a good question. The target is coming from different regions. And I would say we have gone through half
of year. So, U.S., EMEA, APAC and LACIS, you can see all the regions have recorded growth. I expect for 2021 the
picture will be similar to what we have in the interim that means all the regions, they will record a growth. If you ask me
what particular countries, I'd say U.S., India and also the African countries they mentioned like Egypt, Nigeria, Saudi
Arabic they will be the countries with the fastest growth in 2021.

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 8 of 14
So the second part of that is about the additional capacity. Industrial Park, the name is called Smart Terminal Industrial
Task. But in practice think basically it can facilitate the manufacturing of both traditional and Android smart terminals.
So it all depends on the demand.
Our next question is coming from the chat room is related to the financial part. So first of all is regarding the cash
conversion, so it was weaker in the first half of the year, driven by increased inventory, but also due to the higher
receivables. Do you expect the cash conversion cycle to normalize or even improve once the chip shortage abates?
The second question is, what are your plans for future cash flow generation since the dividend payout ratio is only 25%,
and the CapEx in the Industrial Park Project is only equal to half projected annual net income leaving a significant
amount of cash in addition to the large amount of cash already on the balance sheet?
I'll address the first part first. Cash conversation, if you look at the track record for the past 5 or even 10 years of PAX
Global, I think the cash conversion cycle is okay in inventory turnover days, so I probably think of maybe first talk
about the shareholding first. People are more interested in that. I get a sense.
I mentioned several times this year, and also previous years analyst briefing, I think 120 days makes sense to me. I
mean, for the receivable day. If you look at our business model, we manufacture everything of course from the
outsourced manufacturer. We manufacture everything in Shenzhen, then we ship to our other parties in different parts of
the world.
Usually, they are just distributors, they are not end-user of the products, the distributor locally, they will distribute
different end-users. And it makes sense to me you give them for example, like credit terms around 60 to 90 days or in
some cases of our Brazilian client, we give them 120 days because of the prolonged shipment all the way from China to
Brazil. And they also take up certain assembly function locally, so I mean it makes sense to me give them a little bit
longer very term. So if you add up everything together, so our business model 100 days, 110 or to 120 days, perfectly
makes sense to me. If you look at the 10 years of the record, I think we get we were once in a level of around 130 or 140
days.
Thanks to the efforts from the company and from different departments, I think we successfully lowered down the
receivable turnover days from that high level to this year it's 110, I think is already a good turnover days to me, given
our business model. So inventory days, I think this is a strategic move for us. Everyone knows that right now, for
different electronic Industries, or even not the electronic industry, car Industries in China, the components shortage, the
chip shortage has been the biggest problem this year.
So, what we did is, we wisely stocked up a little bit more components, starting from last year. So I think we've made the
wise choice. But of course the coin has two sides, right. You can continue to your efficient production, but at the same
time it could mean your inventory level would be temporarily higher than normal. So I mean, this is something like, we
balance the shortage pros and cons of this strategy. As strong as issue continues, I think we will try to wisely stock a
little bit of our inventory level.
Future cash generation, we have very beautiful records, you can tell that PAX Global is very strong in generating the
cash flows. And in general, if we can make it like one-third of the net profit will become our net cash. I think this is how
I look at the financials.
The CapEx, you're asking about, what was about the excess cash. My personal opinion is, cash management is one
important element. You need to maintain consistency. People know how you will manage your cash. I think this is very
important to me. The past 10 years, I think we have been consistently applying a prudent approach to manage our cash.
We will only spend when we can see obvious synergies or obvious benefits to our operation. Just like the decision that

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 9 of 14
we made for our Industrial Park, I think we have been consistent. This is a very important element to me.
Our next question coming from the chat room is so how does online payment like Alipay affect PAX and the sales of
your terminals?
(Foreign Language)
This is a question that I can take, and these question is about Alipay, I think that has been a question being asked for
many years.
(Foreign Language)
To understand this question, we need to separate this question into two regions. China region and also the rest of the
world.
(Foreign Language)
For the past few years is the fact that in Mainland China, a lot of in-small merchants utilized the QR code payments and
the QR-code payments become very popular in Mainland China among the small merchants, this is a fact. And this also
affect the business of PAX Global in China. It has been because the whole market is going down to the low cost models,
which is the QR code scanners, et cetera. And because of that, when the market goes to the lower end, the competition
will become very strong and the ASP also lower.
(Foreign Language)
However, outside China, for the rest of the world the story is completely different. The reason behind is the popularity
of QR payment is not that strong for the rest of the world, the reasons behind is the merchants, the banks, they mainly
follow the security requirements issued by Visa and Master, because they follow strict data security requirements, so

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 10 of 14
this is a completely different story in the rest of the world, and in the markets for the rest of the world.
(Foreign Language)
So this -- if this payment organizations Visa and Master they continue to -- the world continue to adopt the security
requirements from these international organizations Visa and Master, then our -- the business of PAX Global will not be
affected. The reason is simple because all our products completely meet the safety requirements you issued by Visa and
Master.
(Foreign Language)
So from a different angle, the key question we need to ask is, whether Alipay, Visa Pay, these QR-code payment, can
they be the common payment method, bear in mind that the security requirements or the payment methodologies issued
by Visa and Master has been used and test for many years in the market. So the question is if QR code payment cannot
beat the Visa and Master requirements, then our business especially in oversea business and in the business outside of
China will not be affected by this.
(Foreign Language)
So, our conclusion is our oversee business will not be affected by the popularity of QR code payments.
Operator
Our next question coming from Farrukh Edgarov. So you may proceed.
Analyst
Yes, this is a follow up question on the QR payments. Just anecdotally speaking, I'm not sure, have you guys followed
the situation what happened in Kazakhstan for example with (inaudible) when they launched (inaudible) Pay which is
basically their QR payment and they've basically -- the payment landscape, the way it was in Kazakhstan, it was not
developed and basically they leapfrogged from going, installing actual physical terminals, they went directly to QR
payments in a matter of maybe a year and a half. Are you seeing a similar situation playing out in the developing
countries where there's no established payment network with physical terminals. Are you seeing maybe some examples
here and there that countries are just leapfrogging that step and going from physical? Just going into this the QR system

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 11 of 14
directly. Thank you.
I can probably take this question first and then in case, Tiger, you have any points you want to add feel free to do that.
So to your question, from time to time, we will see a similar QR code machines or even some applications in mobile
phone, they will appear to the market. The key question to ask is, whether they will become popular or maybe they will
become the major means in the payment market.
Well, from what I observed in the market, the answer is, no. The reason it's probably already explained by the
Chairman, Mr.Tiger Nie. I believe that the influence, if you go to the developing countries and the influence of Visa and
Master is actually quite strong. Remember, if you are a shop owner, you want to make sure that you can accept the
payments from local people and at the same time, you want to accept payment from visitors, from tourists coming from
different parts of the world.
So it's just a fact that we can see now, if you look at the western culture, western countries, majority of payment are still
done through Visa and Master. So as we mentioned, as long as the Visa and Master, they are still having a dominant
position in the payment market, and my personal opinion is they will, and that we will not have a big impact or big issue
to our fundamental business.
And remember, for example, like you want to change payment habit, basically payment is related to culture. If we really
want to change their payment habit, you actually need to change the culture of the whole country or maybe for that
place. So it's not that easy China is a special case because they try to run over from the cash, physical cash directly to
QR code payment. But for the rest of the world, at least for the countries, we have extensive service network, I don't see
that happens.
Analyst
So, you mentioned with the Visa and MasterCard, their dominance and basically in most of your markets, is it for the
majority of the markets that are still developing and don't have -- that still rely on basically the traditional terminals. Is it
the case that in most of those markets that Visa and MasterCard are present, because the example that I brought up in
Kazakhstan is that they didn't have is basically same thing happened there that happened in China. They had a large
cash dominance in the region. And then they basically took the step over skipping the traditional payment network and
then went directly into QR. So are you seeing a similar thing in a lot of these developing markets that you are targeting
perhaps?
The simple answer is not quite. From time to time I can see areas or regions they will try to develop a new payment
methods, but that will never become a major means for that particular regions. There is one more reason for why they
cannot get so popular, remember the fundamental of payment or maybe the country motivation about payment is to
make sure that the security is okay.
Any countries in the world, they cannot afford too many defects in the payment system. So Visa and Master, they have
been tested their system for many decades. So that's why it claims the most reliable system we can completely move out
trends there will be that method or that method will become popular in one particular countries. But we were just keep
looking. at the same time, we will just sell the products they need. In case there's some any new trend of payment
emerged.

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 12 of 14
So, our next question is coming from the chat room is related to our SaaS platform and also PAXSTORE. So how does
PAX revenue from the PAXSTORE, whether it's from selling apps or sharing on the merchant transaction fees. So, with
there are more opportunities to increase revenue per terminal in the future. The second question is also related to the
PAXSTORE and also the SaaS revenue. So do you see the SaaS revenues coming from PAXSTORE, being a higher
percentage of revenue in the next three to five years? And can you please give us more color on the direction and the
growth for PAXSTORE and what are their long-term goals for it?
First part of that is revenue from PAXSTORE. We are trying to adopt because it's still an early stage. Remember, one
thing is we only start charging revenue from PAXSTORE just in 2020. So it's the early stage, simple is beautiful.
Primary income is try to charge money based on the units that we have. For example like I'm just making up the number
$1 per month per terminal. If you have 10,000 terminals they are connected PAXSTORE they will charge to $10,000
per month. So we try to make it simple like that.
This accounts for majority of the income from PAXSTORE currently. So when we look ahead, when the system, when
the charging model, everything becomes more mature we'll try to charge based on the usage, for example, like if they
download the apps and then of course, when they download the apps they need to pay supplier of the apps, and then we
will charge the commission from the suppliers and not from the merchants. And this is the similar model that Apple
store or Google Play store they're using. So, actually a small part of our revenue is using this mode already. So in the
future we foresee these two streams will become main revenue from for SaaS income for PAXSTORE.
In the future, we expect, we can have at least HKD100 million in 2023, this is our target. And I think right now we are
on a very good track, we are on a good track to achieve that or maybe to overachieve that, this is still our goal in two to
three years' time.
Our next question is regarding the guidance. So can you talk about the reduction in margin guidance, so do Android
terminals have higher margins? And the last question is why aren't the margins increasing as your percentage of
Android terminals increased?
Thank you for asking this question. Thank you for giving me a chance to clarify about the guidance about the margins,
gross profit margin surprisingly, actually when I first looking into our financials surprisingly for 2021 interim and also
for 2021 full year the one single most influencing factor is actually the renminbi fluctuation.
If we look at the full year, of course, I cannot tell you what will be the full year renminbi rate. So, assuming this is stable
for what we have now, the renminbi against Hong Kong dollar, the exchange way actually appreciate a lot. And
remember one thing all of our manufacturing process and our R&D employees, the two major cash outflows, they are
all located in China, they are all accounted for renminbi.
So, when we translate -- when we prepare the group financial in Hong Kong dollars, when we translate renminbi to
Hong Kong dollars, that will give us a disadvantage in terms of the component shortage issue also account for just very
tiny part of reduction in the margin. This a little bit surprised me because that means we did a relatively good job to try
to transfer the price to our customers to try to use alternative components and try to cost down for the products that we
are manufacturing. So this is the general idea of why we need to reduce the gross profit margin, it's all done to the
renminbi fluctuation mainly Android terminals have higher margins. It really depends because we have more than 10
different types of Android terminal products. They all depends on the country that we are selling. In general the more
developed or the more mature of the market or the country, we will have a higher gross profit margin compared to the

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 13 of 14
developing countries in general.
So our next questions it is coming from the chat rooms. So in your interim result, we see that U.S. region is about to
breakeven, so can you explain the driver behind the reduction in loss, and what's the level of profitability that you can
achieve in the U.S. market?
Thank you for that question. I appreciate that because that means you really look at the breakdown in a very detailed
level. I appreciate that. And I want to mention the background, I mean it's something about accounting because right
now, the segment information that you can see in the disclosure is all down to the legal entity of our US subsidiary.
What does it mean? That means when we try to sell the product from our Shenzhen headquarters to the U.S. subsidiary,
there are certain margins that we need to keep according to a transfer pricing model.
So that means the reality if we look at the group perspective, the U.S. business is actually profit-making, but just that if
you look at a single legal entity, it will give you impression that we are losing money. We are indeed losing money in
the state from a legal entity perspective. So you can see yes, there is a reduction in loss, and it's all because of the
increased revenue.
I can tell you we invest a lot of money to recruit more headcounts locally. Few years ago, I mean our head counts in the
states U.S. subsidiary is only around 100, but right now I think we are having a headcount of around 150 that means
already increased by 50%, just two or three years' time. So this is all fixed cost, salaries, you can't really have a variable
basis for their salary. So it's all fixed cost.
On one hand, it will give us the pressure of seems to be loss making in a subsidiary level, at the same time, it tells you
the fact that we are extremely confident in the future of our U.S. business.
Due to the time limitations, we will go to the last questions. So the first part would be, are you seeking to acquire any
company in the payment industry? And the second part would be given the PAX stock is really cheap, the amount of
cash on hand you have is really attractive for shareholders would be -- don't you consider to focus more on buyback
rather than on dividends?
Well for the M&A, we keep looking. The fact is on the desk there are several projects that we are working on they are
M&A projects. But we need to remember one thing M&A is a double edged sword. So we -- when we look into those
proposals, we need to see clear synergies or benefits to our operation, and the price should be reasonable from our
perspective.
So if any point just can't meet these two criterias, so we will not proceed. So, we have been very careful to -- when we
are talking about M&A. So cash on hand, buyback or dividends. Well, I understand, because I completely understand.
So, a lot of I met investors and shareholders very frequently some of them prefer buyback, some of them prefer
dividends, I know there's some tax incentives behind. But I mean, what we are trying to do or what we can promise to
the market is we will keep focusing, creating more returns, either in the form of dividend or buyback, it is something
that we will do.

Date: 2021-08-12
Market Cap: 10278.58079
Current PX: 9.37
YTD Change($): 2.49
Current Quarter:
Current Year: 1
Current Quarter:
Current Year: 6605
Page 14 of 14
So due to the time constraint, let me summarize today's meeting. I know, there are many questions in the chat room. I
apologize, we cannot address all the questions. But first of all, thanks all for taking the time to participate in today's
meeting. We also thank to management for sharing the group's interim results, market performance, shareholders return,
and also long, mid, short-term plans in the supply chain. So if you have any further question, please send your question
to our Investor Relations email at ir@pax.com.hk. We will also happy to have another call with you going forward. So,
thank you again.
I can see a lot of questions. Sorry about that for the time limitation. So please just feel free to send us questions, and I
would be more than happy to meet you or talk to you individually in another setting. Thank you for participating at call
today. Thank you very much.
(Technical Difficulty) Thank you.
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Pax global 2021 interim result transcript

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Pax global 2021 interim result transcript