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Pax global transcript fy 2020

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Company Name: PAX Global Technology Ltd
Company Ticker: 327 HK Equity
Date: 2021-03-30
Page 1 of 16
, Assistant Vice Presi...
Company Name: PAX Global Technology Ltd
Company Ticker: 327 HK Equity
Date: 2021-03-30
Page 2 of 16
Ethan Cheung
Thank you...
Company Name: PAX Global Technology Ltd
Company Ticker: 327 HK Equity
Date: 2021-03-30
Page 3 of 16
In the financial statem...
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Pax global transcript fy 2020

  1. 1. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 1 of 16 , Assistant Vice President, Corporate Strategy & Finance Ethan Cheung, Chief Financial Officer , Chairman Unidentified Participant Calvin Pei Y 2020 Earnings Call Company Participants Calvin Pei Nie Guoming Other Participants Presentation {BIO 20394385 <GO>} Good evening, ladies and gentlemen. Thank you for standing by. Welcome to PAX Global Technology 2020 Annual Results Conference Call. I'm your host today, Calvin, also responsible for Investor Relations at PAX. Joining me on the call today are our Chairman, Mr. Tiger Nie, and our Chief Financial Officer, Mr. Ethan Cheung. If there are any technical issues occur during this call, please use the dial-in numbers provided on the registration, confirm the email. 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, and also latest product lines development. After the financial targets, there will be a question-and-answer section. You may 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 or mentioned on this call are based on current available information, assumptions and projection about future events. You are cautioned not to place undue reliance on these forward-looking statements. Actual results could differ materially from those contemplated by our forward-looking statements. Reported result should not be considered as an indication of future performance. Now, please turn to page three of the presentation. This is the agenda of this call today. For the first part, we will share our financial highlights in 2020. In the second part, we will focus on product lines latest department and financial targets. Now, may I invite our Chief Financial Officer, Mr. Ethan Cheung, to share our annual financial highlights in 2020. FINAL Bloomberg Transcript
  2. 2. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 2 of 16 Ethan Cheung Thank you. Thank you for attending the video conference and also thank you for your continuous support to PAX Global. COVID-19 has not yet been under control. We sincerely hope you and your family are staying safe and healthy. Since 2020, Android has been running at full power. Our strong Android products are the turbo engine for the Group, driving PAX to accelerate in the e-payment racetrack. Through Android and our efforts, we successfully turned a challenging year into a harvesting year. 40% growth in net profit is a very encouraging result. Looking ahead, 2021, we understand the global market is gradually recovering now. As we all know that, every crisis lies the seed of opportunity. You can imagine when the markets are fully recovered, PAX will speed up and go further. 2020, we have five key highlights. Revenue and net profit both reached record heights. PAX has been listed for 10 years, every single year our revenue grows. Since IPO, our revenue is 7 times higher. In the capital world, I can only think of a few names who can achieve that. Our net profit increased by more than 40%. It's not easy to achieve in a normal year, particularly in the year of uncertainty. We were very excited to share with you our stunning performance. Profit and revenue every year we communicate with you in terms of our financial targets. For four consecutive years in a row, including this year, we delivered what we said. Other than the financial targets, we also promised to the market that we will focus on creating more shareholders returns. We increased the proposed dividend by 67% this year. On top of that, we also declared a 10th listing anniversary special dividend in December. Repurchase, we did 12 times in 2020. Going forward, we will further unlock our shareholders' value. And to create more values in the future Android development is the key. Since 2020, Android has been running at full power. It contribute over 30% of our Group's revenue. We shipped close to 2 million units Android products. So, what does 2 million units mean? On average, every day, there is 5,000 more PAX Android products in your daily life. Android plus our SaaS perform, PAXSTORE, they will be our growth engine in the future. From financial data perspective, our revenue increased by 14.7%. Obviously, it was driven by the strong overseas business growth. Gross profit margin increased by 1.9%, mainly due to the growing sales proportion of our Android products. Profit attributable to the owners of the company increased by 44.3%. To summarize the reasons of our strong profit growth; first of all, increased gross profit margin; second, a proper control on our costs and expenses; third, the expanded market shares. Now let me recap on what we have done in the capital market in 2020. In terms of the final dividend, we proposed HKD0.10 per ordinary share, 67% growth. In last December, special dividend of HKD0.10 per share. I want to highlight here, our dividend ratio has increased from 18% to 21% this year. If we include the special dividend, the payout ratio will reach 33%. Meanwhile, we also conduct 12 times share purchase. We bought back around 20 million shares. In 2021, we will continue to conduct capital actions as appropriate and we'll focus on creating greater returns to our valuable shareholders. FINAL Bloomberg Transcript
  3. 3. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 3 of 16 In the financial statements, this year, you may have noticed several key financial items. Let me quickly run through them with you. As you all know, R&D is our core value. During the year, our R&D expense increased by 16%, mainly devoted to the development of Android software and our value-added services. 2020, our share option expenses is HKD39 million. Inventory provision, you may notice that this year we have a relatively high amount of inventory provision. There are two main reasons behind. First of all, we noticed that our inventory in China business, the aging has substantially increased. And second, we adjusted slightly our sales strategy and ceased the selling off certain older generation products. Because of the two reasons, it explains why we have a wide -- a huge amount of provision, stock provision this year. So impairment on the financial assets. On an individual basis, we provided HKD51 million, which was mainly attributed to the customers in US who experienced some difficulties under pandemic. Goodwill impairment, I already mentioned to you in the interim results last year there is a goodwill impairment related to our Italian subsidiary who is providing maintenance services in Italy. So going down to the working capital, three items I would like to elaborate. First of all, if you look at our balance sheet this year, you will notice that our inventories level increased by around 25% compared to last year-end, while we consciously planned to increase this inventory level as at year-end mainly to prepare for the large demands in 2021. And also since last quarter of 2020, the supply of certain materials in Mainland China has become tight. So we planned to stock up a little bit earlier last year. And inventory turnover days because of the increase of the level of inventory balance, it also increased by 19 days. Payout over days, you will see there is a very strong substantial decrease in the turnover days. The reason behind is, close to last year-end, our overseas customers paid a large amount to us and it leads to a timing difference and created a one-off decrease in our account receivable turnover days. So in a normal market circumstances, the reasonable receivable turnover day should be around 130 to 140 days. Now let me give you more colors on our overseas business. 2020, as like many years before, our overseas markets has a very strong growth and our overseas shipment reached a 10 million shipment milestone this year, 2020. So Latin America is our largest market. However, Android smart terminals are still not widely adopted in this market. From this angle, we can see there is a huge potential for the future growth, especially for the Android products. EMEA region, there are some remarkable shipment growth in this region. Certain countries like especially in Saudi, Egypt and Nigeria, APAC, India and Japan continue to be our key markets. In United States, there are too many good news, and I picked two good news to share with you here. Well, first of all, last year, 2020, there is a huge local fast food restaurant cooperated with us and started to deploy our terminal this year. And not only about food and beverage industry, a mainstream telecom also launched our Android solutions. I FINAL Bloomberg Transcript
  4. 4. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 4 of 16 hope in an appropriate time, I can share with you more good news about the States in the future. The above is the summary of 2020 financial results. Now, I want to move to the second part of my presentation, which we are going to focus on our operation, our product lines. As I just said, as you noticed, our overseas market has consistently achieved robust growth. We believe that robust growth is built on a solid foundation, and our foundation is our innovative and evolving product lines. Today, PAX, we go beyond payment. Nowadays, if you look into different metrics or measures, our hardware has already been leading in the industry. Not just about hardware, over the past few years, we invested and developed our own software capabilities. Combining them -- combining the two, we are now indeed offering an integrated solution to our customers. In the coming few slides, I want to quickly walk through a few of our existing hardware portfolios. I'm sure many of you may have seen or used them before in your daily life. First of all, first hardware portfolio is about retail solutions. Here is our Android and traditional solutions. In this portfolio, we can see an evolution is happening, the evolution from traditional product to Android products. And I think the solution, our products are widely used in so many different business applications and environment, like you can see in the graph here, gasoline station, vending machine, parking, drive-through scenarios. Third, our commercial solutions. While our commercial solutions, you can see here, E series, SK series, they're all integrated different operational functions, they suit different types of merchants and business environments, like warehouse, store, fast food chain, et cetera. So far, these three hardware portfolios all target at the corporate level. Any other possibilities. We are going to introduce a mobile phone and tablet solutions, and they allow us to open up a new market segment, the consumer segment, B2C. Now, new product, new segment, that will mean new revenue in the future. Actually, we already have some customer orders on our hand now for our mobile phone and tablet solutions. So let's switch to the software. While people will say, well, software was something not quite relevant to PAX, yes, that was true in 2010, PAX used to be a hardware company, now we have already built a strong capability in software applications. As you can see a summary in the slide here, we already developed very strong software applications and customers are using our software now. These software applications are built mainly on our open platform PAXSTORE, which I'm going to talk about in a second. Our software already penetrate into different operational functions and these applications are more than payment. That's why we say, PAX, we go beyond payment. So, what is PAXSTORE? In one simple sentence, PAXSTORE is a terminal SaaS ecosystem connecting three parties, acquirers, developers and merchants. From acquirers perspective, PAXSTORE allowed them to strengthen the terminal management capabilities and reduce their maintenance costs. Merchants point of view, merchants can basically enjoy various applications deployed by us or deployed by third-party developers. App developers, well, they can promote their value-added services on our global PAXSTORE platform and, of course, they receive the software income. To conclude, PAXSTORE basically a terminal FINAL Bloomberg Transcript
  5. 5. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 5 of 16 SaaS perform that allows all parties to contribute, to communicate and more importantly to achieve a win-win situation. So how big is PAXSTORE? How big is this ecosystem? Over 80 countries, they are now using PAXSTORE and over 2 million terminals already connected to PAXSTORE, 2 million is a approximately the population in Paris. There are over 2,000 talent app developers working on our platform and they already create over 4,000 apps across different business segments. So what is our strategy on PAXSTORE? We have three directions. First, for open, in the future, additionally to existing PAX branding terminals, we will involve terminals from other famous brands, not just PAX. While in this way it grows our ecosystem, of course, and also make it more diversified, and second, more values. Through creating more creative and quality and customized apps, our ecosystem will grow stronger. We do it, at the same time, we also invite the talented apps developers to participate in our platform. Third, more in depth. While we'll better utilize our extensive hardware network, as you know, our hardware network already covers over 100 countries. This is a perfect synergy between our existing offline network and online ecosystem. While on the other hand, looking ahead, looking to the future, we planned to facilitate the growth of digitization of the payment market and we are exploring artificial intelligence and big data analysis techniques. So, what is the target of PAXSTORE? What's the financial meaning of PAXSTORE? So, in terms of PAXSTORE and also other relevant solutions, we expect a -- we set a three-year target and we expect to have at least HKD100 million in 2023 annual income. And this is -- I can say this is kind of like a -- quite a prudent approach. I think we should at least get that. And for the number accumulated connected terminal, we expect to achieve 10 million units. So, we shared here our target of our PAXSTORE, our future growing engine, let's move to a bigger picture, the financial targets of the whole Group in 2021. In developing our target here, we considered the current economic factors and also applied a prudent approach. Revenue, we expect to have at least 10% growth. For the gross profit margin, we're taking into account two important factors. First of all, the exchange rate, the currency. While we can see now the renminbi has appreciated quite a lot compared 2020, you know, of course, we cannot predict the trend of renminbi. However, based on the current level, based on where we are, that would create some negative impact to our gross profit margin. Second, about the material side, the price of the certain materials. While since last quarter in 2020, we can see the price of certain materials increased, for certain times, it increased quite substantially in Mainland China. So, at least to a temporary cost -- production cost increase and also a softened pressure on our margin. So considering the two uncontrollable factors, we set the expected gross profit margin at 39% to 41%. And last but not least, our operating profit margin, we set the target at around 18% to 20%. So this is about my presentation, and I am going to pass the time back to Calvin. FINAL Bloomberg Transcript
  6. 6. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 6 of 16 Calvin Pei A - Calvin Pei A - Ethan Cheung A - Calvin Pei {BIO 20394385 <GO>} Thanks, Ethan, for sharing our annual financial highlights, product line updates and financial targets. So now we open the call up to questions. So you may use the raise hand function at the bottom of the platform and we will unmute your microphone. You may also type up your question in the chat box. Questions And Answers {BIO 20394385 <GO>} So our first question is coming from an investor through a chat box question. So can PAX management give more ideas of how we are going to plan for the cash and equivalent in the balance sheet as it has increased over the years? And for the second question, so can you explain more how your share repurchase plan will be as we see there is a slowdown during last few months? Thank you. Okay. So -- okay. For the cash management, thank you for your question. I think this is one of a very popular questions to PAX. And I think this is kind of like -- I think first of all, I mean, it's good to see the cash, especially in the downturn situation, our cash continue to increase. And as you know, many of our investor know that, we are quite prudent in managing our cash. When I say prudent, you would never see we put our money to buy stocks, to do some speculative movements, that is something that we will not do. And -- but at the same time, because of the accumulated cash, I think we -- especially in these difficult times, I think we can have the power to buy -- to -- first, it's important to make sure that our suppliers and our customer have full confidence in our operation. And, of course, something like dividends, repurchase that -- which is part of your -- second part of your question and also some M&A opportunities. And also earlier, I mentioned that we stock up a little bit towards the end of last year. This is something that - - this is the agility that we have because of the strong cash balance that we -- on our balance sheet. And I think in the future, if I look ahead, I mean, the most activities that we are going to spend our money will be capital market like dividend, repurchase and potentially if there is some good projects in M&A. And for the buyback, yes, I think buyback is kind of like the decision of the whole Board of Directors and we will -- we also -- well, we'll actively look into this as well as other (inaudible) declaration of dividend when there is a -- when we find it suitable, we will do the repurchase this year. I know that people will ask about what is the budget, what is the timing or criteria for your repurchase. All I can say is we have the plan at the Board level. We have a plan to do when and to consider what factors to incorporate when we do repurchase, but bear with me, we cannot announce them as the figures or precise numbers that we are looking at. {BIO 20394385 <GO>} Our next questions comes from (inaudible). So you may proceed. FINAL Bloomberg Transcript
  7. 7. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 7 of 16 Q - Unidentified Participant A - Ethan Cheung A - Calvin Pei Q - Unidentified Participant A - Calvin Pei Q - Unidentified Participant Yes, Ethan, hi. Question on the Android terminal. I presume the pandemic has accelerated the shift to switching to the Android terminals. How early are we in that cycle? And I presume that's part of the replacing the old terminals and part of the new businesses. And so, that's the first question. And the second question, are different countries more or less in the same stage in that cycle of switching to the new terminals because of the pandemic as well? Thanks. Thank you. Thank you for the question. I think this is a very great question about Android. Yes, you're right, pandemic accelerate the evolution from the traditional terminals to Android. And the pace in different places and regions, they are quite different. Well, it's all because of the environment, the business environments whether they can fully utilize the benefit of Android. If you look at the benefit of Android, I think this is quite easy to see just like your mobile phone. The app store, the applications can allow the values -- hundred of values can create by a single payment terminal now. So if I just wanted to share with you some numbers so we can better understand what do I mean by different paces. Well, if I look at the European market, I think right now it's close to -- from PAX angle, I think it's close to 50% of our terminal shipment is from the Android products. But if you look at the whole group, the revenue contribution from Android is just around 30% now. And if you look at some developing countries, for example, like several countries in LACIS region, their penetration -- the penetration of Android product is still quite low and it's significantly lower than the average of the Group. So this could give you a feeling that, well, this is kind of like in a different pace, but one direction won't change is the evolution just like what's happening or what's happened in mobile phone. In three to five years' time, or maybe even a longer-term, we are targeting to have our revenue contributed by Android at around over 80%. I hope I answered your question. {BIO 20394385 <GO>} Our next question comes from Louis (inaudible). You may proceed. Yeah. Can you hear me, guys? {BIO 20394385 <GO>} Yes, we can hear you, Louis. Yeah. Thank you for the call. A couple of questions on my side. The first one would be on the outperformance in the revenue in 2020. You were aiming for a flattish revenue and you did way better. Where does it come from? My second question is concerning the Hi FINAL Bloomberg Transcript
  8. 8. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 8 of 16 A - Ethan Cheung A - Calvin Pei Q - Unidentified Participant A - Ethan Cheung Sun revenue related. How much it is this year? Third one would be in Android margin. Normally, it was supposed to be a bit higher and helping within the mix. Is it still the case and how relevant it is? And finally, my first one would be on the payout. This year, it has been 33% including the exceptional dividend. Do you believe it's sustainable? And can we put in our model the 30% or at least the minimum in terms of payout for the coming years? Thank you. Okay. Thank you, Louis. Thank you for the questions. Well, for the guidance that -- for 2020 guidance, at the time that we gave the guidance, I think this is time of the -- well, I mean, probably the biggest uncertainty in a century for the economy, which is that -- which was the time the pandemic just began to spread. So we incorporated a prudence when we set that target in 2000 -- back to the time one year ago. And Hi Sun revenue, I probably think you mean the sales of the payment terminals to a PRC subsidiary of Hi Sun Group. So this is -- this amount is below HKD100 million. And just want to remind this number decreased quite significantly from -- when I first joined the PAX in 2016, I think it was around HKD120 million. I think it's -- right now it's far below that. I mean, it's just less than -- if I remember correctly, I can refer it back to double-check to the annual report, but it should be around HKD40 million now, this year 2020, which is insignificant. And margin, the margins of Android. Well, you're right, the Android margins, right now I can see the Android products in general in different regions, different products, different models, they're all different, but in general they are higher, the margins are higher than the traditional products. And in -- at least in 2021, I think this trend or this difference, price difference, will continue. And the payout, dividend payout, I'm glad that you asked this question, I'm also -- I'm sure that there will be the question in many -- in the minds of many of our viewers. Dividend payout ratio, what we can promise here is we try to gradually increase our dividend payout ratio based on the fact that if our operation, if the growth in the future will continue, then we can increase gradually the payout ratio. Okay. {BIO 20394385 <GO>} Our next questions comes from Jonathan Tan [ph]. You may proceed. Hi, Ethan. Thanks for the presentation. Just a question please on the inventory write-down that was taken. Can you just give me an idea of what these models were? I see obviously performance would have been even better without that write-down. And going forward, do you see that continuing at the same level or do you think that's a one-off? Thanks very much. Okay. I forgot to unmute. So thank you, Jonathan. Thank you for the question on stock provision. So short answer is one-off. The stock that we write off or provided provision, they are mainly two types. First of all, it's the products. It's the long aged products in China market. As you know, the China market, we experienced a significant decrease in the last few years, and that's why certain long aged stocks accumulate. And I can -- FINAL Bloomberg Transcript
  9. 9. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 9 of 16 A - Calvin Pei A - Ethan Cheung A - Calvin Pei Q - Unidentified Participant A - Ethan Cheung because of the pandemic also created pressure for the selling of those long aged stock. The chance to sell them is right now, that's why we provided the provision. And I don't think there is any other long -- there is a significant balance of long aged stock in our balance sheet now. So this is more like one-off. Second type of is also older generation of traditional products, which is -- I think is kind of like normal because the trend is shifting to Android. So, you need to write off certain older generation traditional products as well. These two products and also the related raw materials, we provided the provision. And that's all about the stock provision. {BIO 20394385 <GO>} Thanks, Ethan. If you have any questions, you may use the raise hand function at the bottom of the platform or you may type up your question in the chat box. So, our next question is coming from the chat box. So, can the management provide more colors on the breakdown of the expected revenue growth per product line for the coming years? Expected revenue growth breakdown. Okay. First of all, I would just give colors on the revenue growth across overseas and China. While in China, I think next year we are going to be more or less around flattish. And for the overseas regions, in general, I think we are looking at around 10% or more growth. That's why we formed a overall type same growth for our top line. And in terms of product lines, you -- I probably think you refer to Android and on Android. While our target is to make it like the increase to 80% in the next three to five years. And in the roadmap, I think this is kind of like a -- in general, the Android proportion will just increase in 2021. Here, I don't want to give out the exact percentage. {BIO 20394385 <GO>} Thank you. Our next question is coming from (inaudible). You may proceed. Yeah. Two follow-ups. The first one would be to understand how easy it is for you to penetrate newer regions? You're initially strong in APAC, then LatAm and now you're getting bigger and bigger in the EMEA and the US. Where is it easier for you to go? And how far within the penetration in terms of market share can you go against well installed players like VeriFone or Ingenico? And then the second one is on M&A. You've been for a while looking for assets anywhere in the world, but without any big success so far. Can you remind us what are you looking for? And are you -- do you have hot topic in the pipelines? Thank you. Thank you. Thank you for the follow-up questions (inaudible). First of all, the question about penetration in Europe, thank you for asking this. I also want to share more about European market because this year 2020, we have a very, strong growth in certain countries like in Italy, Poland, Germany, UK. And the reasons why we can -- I like the word penetrate. Yes, we penetrate gradually in those markets. I think there's two important factors. First of all, our partner, I think we really need to appreciate our European partners. They're working really hard to launch a lot of -- they did a lot of certifications for our FINAL Bloomberg Transcript
  10. 10. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 10 of 16 A - Calvin Pei A - Ethan Cheung A - Calvin Pei products. Certifications sometimes you need to spend and invest a lot of time and money into that and they have full trust in our product and that's why they did -- if you look back to our presentation in the previous years, we mentioned that we did -- we already did a lot of certifications for many of our Android products. And this year, I think it's just kind of like a harvesting year, we basically got a return from what we -- our partners and us put efforts in previous years. Second factor, I think, is we need to mention one thing is, even though right now we penetrate, but however market share overall compared to our largest competitor in this region is still tiny. As you know, do you know there is a lot of things happening in the market and our competitor has also experienced certain changes. And if you are the players, if you are the customers in this industry, when you found your largest supplier experience certain uncertainties, the best way you can do or best alternative that you will find is to get try to approach another supplier. And right now in the world, I mean, if we need to name the global player, I think it's just a few names you can name. So, we are one of them and we also benefit because of these changes in the market. And these two factors, our strong partner, our strong products and also the shift in the market, the change in the market, I think that will continue to bring us benefits in the future in the European market. And it will just getting better, I mean, the market share in European countries. Sorry, I think I just to referred my notes. There's -- second part is about M&A. Yes, M&A, I know we didn't announce a very robust M&A in the last few years, but we are looking -- we have some pipelines and our target, our target is always the (inaudible) software and applications company in the State and in Europe that can have a synergy with our existing network. {BIO 20394385 <GO>} Our next question is coming from the chat box. So PAX is a hardware and software company, are you planning to expand on digital markets, like becoming also a payment processor gateway for online merchants and also markets, meaning like a solution for every online payment? Thank you for the question. We have no plans to move to acquiring business. Our customers are doing -- acquirers, we are very happy to support their business. When -- you know, don't get us wrong, we were -- when we say software applications or solutions, I think this is more along the payment chains and we basically empower our customers, their acquirers to provide services to their own customers. And that is what the PAXSTORE platform aims at. We try to achieve win-win, everyone would be happy. We provide a platform, the merchants use applications and then our -- the acquirers can charge money on our platform through providing the services to the merchants. So, we are basically -- this is kind of like the platform business that we are working on. {BIO 20394385 <GO>} FINAL Bloomberg Transcript
  11. 11. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 11 of 16 A - Ethan Cheung A - Calvin Pei A - Nie Guoming A - Ethan Cheung Our next question is also coming from the chat box. Can you provide some color around the 10% growth outlook in terms of different regions? Any specific regions where you expect stronger growth? The second question will be, are you seeing any near-term supply chain issues from continued COVID impact in Europe, India and et cetera? Well, thank you for that. More colors on the 10% growth. I think I need to elaborate a little bit more why we gave our target for our overall Group's revenue. Well, I think we are up to the point that -- I mean, the business is growing the industry, I mean, the payment terminal industry is growing, where some time certain points in the year we need to make supply chain decision. It means we cannot fulfill all orders. And that's why that would happen from time to time. That's why we are providing an overall Group's revenue and that basically incorporate the decision of what regions or countries we want to prioritize. So, the -- in general, I just think the overseas regions, the four regions that we have, basically we are looking at around 10% or slightly above 10% growth. So for the supply chain issue, I -- well, in China, we mentioned about the materials. Start from last quarter -- or actually second half of last year, we already noticed that there are a little bit shortage of certain materials. The reason behind is, of course, the COVID and also the trade dispute between countries and that creates shortage for certain materials and also other industry, not just us, for example, the mobile phone industry, they are also actively looking for certain materials like the chips. That is the reason why we experienced some shortage, but however, we -- in any case, we found this shortage or price issue, they are all short-term. And when that become -- that will probably -- I don't know how long, but that will eventually -- the price and the shortage will just come back to normal. This is what we are expecting. In terms of the supply chain as a whole, this is a specific situation in China, but I think as a whole in general in the world, I think the supply chain in terms of the manufacturing process, I think China is still the best in the world. And in payment terminal markets specifically, I think we are in the best position in our industry to fulfill the coming orders when compared to our competitors. {BIO 20394385 <GO>} So our next question is also coming from the chat box. It's related to competitive landscape. So there will be three questions. So first, can management provide an update on PAX competitive positioning? So why is PAX gaining shares? And can this continue over the next few years? The second question will be, how has the competition changed since Ingenico and VeriFone were acquired? The third question would be, other than Ingenico and VeriFone, are there any new competitors that PAX is focused on? {BIO 16462067 <GO>} (Foreign Language) (Foreign Language) No problem. FINAL Bloomberg Transcript
  12. 12. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 12 of 16 A - Nie Guoming A - Ethan Cheung A - Nie Guoming A - Ethan Cheung A - Nie Guoming A - Ethan Cheung A - Nie Guoming {BIO 16462067 <GO>} (Foreign Language) Okay. Let me do the translation for Nie. Well, actually when I met many investors many years ago, I already said to them that if you look at the competitive advantage of PAX, we - - our competition -- our competitive power will be -- would be higher than them in the future. So, many years past, so what we said -- what I said has actually come out. And if you look at the competition power, if you look at the future, our competitive power over time will just be higher, and that will continue until one day we overtake the position of our largest competitor. {BIO 16462067 <GO>} (Foreign Language) Okay. Well -- just one second. Well, if you -- the commercial reason why our strong competition power, the commercial reason is simple. If you look at our two largest competitors, Ingenico and VeriFone, you would expect that their focus will gradually shift more towards software and services income. But for PAX, we keep the consistency. We continue to focus on the hardware portfolio. Of course, we are also exploring the income from services and solutions, but at the same time, we didn't lose our sight on providing the perfect and best hardware portfolio in this industry. So our focus on hardware, you can take one example that we are basically entertaining every -- the global demand. Every country when they want to have a new product, they look to PAX. And we are the -- indeed the quickest to respond and to provide them hardware and to provide them with customized products. And if you look at our Android products now, we are far ahead of our -- we are far in front of our competitors. This is a perfect demonstration of our execution of our strategies. {BIO 16462067 <GO>} (Foreign Language) Well, for the second part of your question about whether the change in our competitor, we can notice that many customers on the front line -- happening on the ground is many customer choosing PAX. They approach the PAX and they want to cooperate with us. This is the most direct experience that we had since we heard about the change in our competitor. {BIO 16462067 <GO>} (Foreign Language) FINAL Bloomberg Transcript
  13. 13. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 13 of 16 A - Ethan Cheung A - Calvin Pei A - Nie Guoming A - Ethan Cheung A - Calvin Pei A - Ethan Cheung So in terms of your -- third part of your question, new competitor. In general, we can see some small players, small suppliers in certain countries or regions, but if we look at the global context, we don't see any new competitors that can be close to at a global level. Well, the reason behind is, this industry still has a very high -- relatively high barrier for the new entrants. So it is quite difficult to find a new supplier that can achieve a true globalized structure and to communicate and entertain the demand from the diversified world. So this is -- so because of that, including the Chinese competitors, we cannot see anyone that can be comparable to PAX at the moment. {BIO 20394385 <GO>} Thank you. Our next question is coming from the chat box. So the question is mobile payments can now be done from smartphones directly, like Samsung Pay, Apple Pay, Alipay, et cetera. So what's PAX Global solution to this trend? {BIO 16462067 <GO>} (Foreign Language) So mobile payments, well, I mean, first of all, if we look at the payment world, the most important thing is payment is diversified. There is so many different means or different kinds of payment methodologies now. So mobile payment like Alipay, Samsung Pay and also the traditional credit card payments, there are so many different forms of payments, and no one can replace each other. And from the most -- and one more -- more importantly, if you think about this problem from the merchant perspective, the most important aspect that you want to make sure is, you basically need to facilitate all kinds of payments when a customer walk into your shop. How you can do that? I mean, the cheapest and the most efficient way is to have a terminal solution in your shop. In this way, if you think about that, if you just offer mobile phone and you don't accept cash or you don't accept credit card, that will be -- end up in a disaster, you're basically not in a good position to accept all the customers. So from that angle, I would probably think that if you look at the industry now, the most economic and the most efficient solution is to just have a very cheap payment terminal that can entertain all kinds of payments. {BIO 20394385 <GO>} Thank you. So our next question is coming from the chat box. So why do you think your value cheaper than your main competitors? Value cheaper than the main competitor means cheaper price, right? Well, I mean, currently, we are -- well, if you compare to --our pricing to our two main competitors globally, you don't see any big difference. Well, of course, 10 years ago when we first went to the overseas market, well, we competed -- to a certain extent, we completed on price, but we don't feel this is a good strategy, especially in the modern -- in countries like who has a very high requirement of security. You cannot compete pricing on those FINAL Bloomberg Transcript
  14. 14. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 14 of 16 A - Calvin Pei Q - Unidentified Participant countries. What you can rely on is your brand, is your reputation, is your -- and is your quality. So in general, short answer to your question is, I mean, there is no significant pricing between our products to our competitors. {BIO 20394385 <GO>} Thank you. So our next question is coming from (inaudible). You may proceed. Yes, Ethan, I had another question. You mentioned the Ingenico and VeriFone are switching to the software side of the business, whereas PAX is continuing to focus on hardware. In terms of the longer-term picture, I'm talking 10 years from now maybe, what do you think -- or are you seeing any trends in terms -- you said the payment world is diversified and the terminal is the cheapest way to offer all kinds of different payment methods, but are you seeing any trends that more and more of your customers are accepting payments via mobile solutions and other alternatives? So, that's the first question. And the second question is on the software side of business. The targets I understand, for 2023 are HKD100 million of revenue, which is not significant in terms of the overall Group. What kind of operating margins are we talking for that business at scale? Thank you. Thank you for the question. Okay. So first of all, the trend about the payment. The biggest trend that I see now in the payment world is people are looking for a solution that they can -- first of all, the most important element in payment is security. So first of all, people are looking for -- shoppers or merchants, they are all looking for a solution that can provide a reliable security. And when I say reliable, that should be well tested in many, many years. This is the first element people are -- if -- in the payment world. And the other trend I'm seeing is people no longer think terminal -- if the payment terminal is just do payment, I think they will just be eliminate in the near future. So right now people are expecting a payment terminal to be kind of like integrating to their back- end operational functions. If you combine the two trends together, I mean, that will give you one answer, which is the Android solution. So this is something we spotted a few years ago. That's why we believe we should also be provide -- first one to provide these solutions. And I think this is the biggest trend now. For the second part of your question about the software, right, the operational margin, well, I mean, depending on how you view, because from a -- okay, say, from a technical point of view, because all the development costs, all the R&D expenses for the Android platform and for the PAXSTORE platform, they are already included as part of our R&D spending. So to an extreme, you can say that this is kind of like a 100% profit margin, but of course, from a -- I know from a bookkeeping, from an accounting record, if you need to get the -- kind of like extract the expenses related -- directly related to PAXSTORE, I would -- FINAL Bloomberg Transcript
  15. 15. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 15 of 16 A - Calvin Pei A - Ethan Cheung A - Calvin Pei because it's a starting phase, but my estimation is we should have a -- for this kind of service businesses, we were expecting to have at least over 50% profit margin. I just want to get back to one question because I saw in the chat room. I think I got it wrong, the price is cheaper. I think you mean about share price, not about the price of our product. Sorry, I am too focused on our product portfolio. So share price. I -- well, as I always say to the market, I don't want to comment the valuation because everyone forms their own valuation based on their own assumptions. But if you look at some objective facts, I think our P/E, of course, is lower than our competitors. And the most important thing I believe in is I think the current price does not reflect the true prospect of the company and the industry. {BIO 20394385 <GO>} We see there are many questions on the chat room as well as many investors have raised their hands. So our management would like to answer all of them, but however we are running longer than as planned. So therefore, we are going to our last question. So our last question is coming from the chat room. So how do you think about the long-term future for the software business? Are you planning to use this to differentiate your hardware or are you planning to generate standalone profits from the SaaS business line? Well, thank you for that, you mean, question about software. Our target has always been the same, to create an ecosystem. We -- of course, in that ecosystem, we -- basically the software and hardware, they complement each other. And hardware portfolio, we will never forget our core advantage or core competitive edge is our strong and quality hardware. So we will continue to focus on that. And at the same time, we can see a huge potential because of what we have already developed, especially for the hardware network. That's why we utilize that to create something more. And to -- the most important element in PAXSTORE is to utilize that network and to have more applications that are valuable to our merchants and acquirers. And if we can provide that values to the acquirers, I think the income or the standalone income, they will just automatically come. So the first step, or maybe even most important step, is to make sure that through in this ecosystem on this platform we have value-added -- real value-added services. So this is the first step. And in the future, of course, HKD100 million in 2023. As I said earlier, this is a -- this is kind of like -- I can say it's kind of like prudent. Well -- but right now, I hope you understand that right now we just started to get income not less than a year. So we have adopted some prudency, but in the future, I can see if we can -- if the customers, if the acquirers, they can recognize the values, I think we can grow much more than that. {BIO 20394385 <GO>} Thanks, Ethan. So this concludes the Q&A section. I would like to thank everyone for participating on this call. So if you have any further question, please send your question to FINAL Bloomberg Transcript
  16. 16. Company Name: PAX Global Technology Ltd Company Ticker: 327 HK Equity Date: 2021-03-30 Page 16 of 16 our Investor Relation email at ir@pax.com.hk. We are ready to take up your question. Thanks once again. This transcript may not be 100 percent accurate and may contain misspellings and other inaccuracies. This transcript is provided "as is", without express or implied warranties of any kind. Bloomberg retains all rights to this transcript and provides it solely for your personal, non-commercial use. Bloomberg, its suppliers and third-party agents shall have no liability for errors in this transcript or for lost profits, losses, or direct, indirect, incidental, consequential, special or punitive damages in connection with the furnishing, performance or use of such transcript. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of Bloomberg LP. © COPYRIGHT 2021, BLOOMBERG LP. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited. FINAL Bloomberg Transcript

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