Pax Global Earnings Call Transcript FY 2019

Company Name: PAX Global
Company Ticker: 327 HK
Date: 2020-03-31
Event Description: Y 2019 Earnings Call
Market Cap: 3175.77156
Current PX: 2.92
YTD Change($): -0.73
YTD Change(%): -20.0
Bloomberg Estimates - EPS
Current Quarter:
Current Year: 0.575
Bloomberg Estimates - Sales
Current Quarter:
Current Year: 4986.5
Page 1 of 12
Y 2019 Earnings Call
Company Participants
• Calvin Pei, IR / Host
• Ethan Cheung, CFO
Other Participants
• Kenny Chow, Analyst
• Gabriel Castro, Analyst
• Neeraj Mohandas, Analyst
• Luca Franza, Analyst
• Farrukh Edgarov, Analyst
• Jon Ogden, Analyst
• Trung, Analyst
• Louis Renou, Analyst
• Massimo Antonello, Analyst
Presentation
Calvin Pei, IR / Host
Good evening, ladies and gentlemen. Thank you for standing by. Welcome to PAX Global Technology 2019 annual
results conference call. I am your host today, Calvin Pei, also responsible for investor relation at PAX. Joining me on
today's call are our Chairman, Mr. Tiger Nie; and our CFO, Mr. Ethan Cheung.
In order to maintain the group's high transparency style, we are using Zoom webcast to meet with investors and
shareholders and share some financial highlights and insights about the company. If there are any technical issues occur
during this call, please use the dial-in numbers provided on the registration confirmed email to continuous joining the
conference.
Now you can see our presentation on the screen. The company also posted the presentation to go along with this call.
All materials can be found at our website www.paxglobal.com.hk on the Investor Relations section. 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, corporate strategies and financial targets. After the financial targets, there will be a
question-and-answer session. You may use the "raise hand" function at the bottom of the zoom platform, and we'll open
up 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 currently available information and our current assumptions, expectations and projections 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 results should not be
considered as an indication of future performance.
Please turn to page 3 of the presentation, it is the agenda of this call today. Now, may I invite Ethan to share our
financial highlight in 2019, recent updates in 2020, corporate strategies and financial targets.

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 2 of 12
Ethan Cheung, CFO
I want to begin with our 2019 key achievements. First of all, in 2019 we have achieved record-highs, in terms of
revenue, net profit and proposed final dividend. Revenue is HKD4.9 billion, net profit HKD625 million and proposed
final dividend of HK 6 cents. Secondly, our Android products, accounted for more than 20% of the revenue in 2019, it's
a small success. Thirdly, as communicated with the market in 2018, we strived to improve the accounts receivables
turnover days. In 2019, our account receivable turnover days improved by more than 20 days. It brought positive
impact on the Group's cash flow and operation efficiency. Lastly, same as past few years, we have achieved and
outperformed the financial targets that we gave to the market last year.
On next page, we have a quick snapshot for PAX's 2019 overall results. The overall topline increased by 11.6% year on
year, to HKD4.9 billion. During the period, overseas business achieved another impressive growth of 21.3% in
overseas market. It is double-digit growth for 6 consecutive years. GP margin was improved by 2.7 percentage points,
from 36.8% to 39.5%. The major reason is mainly due to the higher proportion of overseas revenue. It also relates to
the depreciation of RMB and our cost reduction. The profit attributable to the owners of the company was HKD624
million, with an increase of 19.4%. That's the general snapshot of our 2019 annual results.
Slides 6 and 7 represent a high-level analysis of our key markets. In 2019, overseas revenue contributed over 90% of
the total revenue. Let me give you more colours on each overseas region.
In LACIS region, we have achieved a stable growth of 4%. In Brazil, we launched Android smart terminals A930 and
A50 in 2019, we expect more shipments of Android products in the coming years. In addition to Brazil, we are gaining
more market shares in some other countries, like Mexico and Argentina, and Russia.
In EMEA region, a very strong growth of 36% In Europe, our android solutions are highly recognized by the market in
2019. Because of this, we have gained more market shares in European countries like Italy, UK, and Germany.
Although these markets are currently affected by COVID19, we believe that these markets will bring big contribution
to Pax in the future. Not only in Europe, we also see some good signs in the middle East and Africa.
In APAC region, in 2019, our major revenue growth is coming from Asia Pacific, with 94% substantial growth, almost
a double. India and Japan are important drivers of high growth in the APAC region. In India, where more than 600,000
units have been shipped, PAX is now a major supplier in India and we are working very closely with PAYTM. In
Japan, despite of the postponement of the Tokyo Olympics, the government keeps pushing the cashless solution in the
country. COVID-19 will affect in the region in a short run, we are optimistic with the potential in APAC region.
In USCA region, we have recorded a strong growth of 32%. In 2019, we have obtained important certifications with
telecommunications service providers AT&T and Verizon. We are optimistic of the prospect of US market. Android
solutions became a popular trend across the world. We consider Android products as a key product for future revenue
growth. In 2019, smart solution contributed more than 20% of the Group's revenue. In our product portfolio, more than
30% of them are Android product.
Our android product is in an absolute leading position in the global market. What makes Android so special? It is the
high flexibility. Android can be applied in the Internet of things (IoT), self-service payment scenarios such as retail,
catering, transportation and so on Pax self-developed a cloud-based terminal management system, called PAXSTORE.
Right now, PAXSTORE has over 1,000 value-added applications, including customer relationship management,
enterprise resource planning etc. Our android products and PAXSTORE together offer a large range of solutions to our
customers.
The next slide. We have assessed the impacts of COVID-19 on the Group. There are two major aspects. First, in terms
of the supply chain, we believe the impact on our supply chain and shipment is short-term. Based on our current
assessment, there is a delay of around one-month for our shipment. Our manufacturing contractors are in Panyu,
Guangdong. We understand that their production capacity recovered over 90% in March. Meanwhile, our main
suppliers are located in the Pearl River Delta, and their capacities also recovered by over 90%. Therefore, the impact on
supply chain is short-term.

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 3 of 12
Secondly, in terms of sales, we believe the uncertainty of customer orders continues in 2020. As COVID-19 continues
to spread around the world, PAX remains conservative in the forecast of customer sales orders in 2020. No one knows
the extent of the impact from COVIC-19, however, history tells us that after an economic downturn, there will be a
rebound. Pax is preparing for the market recovery.
I want to emphasize one thing - Pax has strong financial track record, ample cash on hand with no borrowings, these
characteristics are crucial. Under this difficult time, where cash is king. Our employees, customers, suppliers and
business partners all over the world have full confidence in us. Here is an update about the strategic adjustment in
China in 2019.
As we communicated to you last year, we are now focusing on serving reputable and strong customers in China. Even
though the strategy has leaded to short-term impact on China revenue in 2019 and 2020, we expect it will benefit the
profitability in a long run. Structure follows strategy, so we made some structural changes. As of now, there is a
reduction in headcounts of around 160. The reduction led to a one-off cost of approximately HKD6 million. Expected
annual cost saving in 2020 will be around HKD20 million.
In the past 6 months, we conducted a series of corporate actions. Earlier this year, we conducted five shares repurchase,
brought back around 1% outstanding shares. For the proposed final dividend, it increased by 50% to HK 6 cents per
share. In October 2019, we have granted share option to our staff. In the future, PAX will actively consider corporate
actions, focus more on creating greater shareholder returns and unlock the shareholder value.
Now we come to the strategies. In the next few years, our key corporate strategies. There are 5 strategies and I want to
talk about each of them one by one on the following slides. First, branding. Pax is a global company. In the past few
years, we can feel that our partners worldwide sometimes recognize our brand more than our products. We believe
brand image is key to differentiate us from our competitors. We set ourselves a target to become the best brand in the
industry. We are working on the following actions. Pax has an absolute leading position in Android product series. We
should further enhance our image by rolling out more high quality and diversified products. When I say diversity, we
used to have sell financial POS, we introduced a new product line of commercial POS, we should introduce even more
product lines in the future.
Secondly, we should focus on software. Pax used to be 100% hardware company. Actually, it's not true, years ago, as I
said earlier, we launched software products like PAXSTORE and several other software solutions. They are actually
helping our customers in many different business environments. Integration, hardware plus software, an integrated
company offering comprehensive payment solutions. This is the brand image we are looking for in the coming few
years. In the past few years, Pax has done very well in overseas market, one of the key success factors is our global
partner network. Consistence is important to build trust. Consistence means, both strategies and policies, it is important
to set up a stable approach on our business strategies and channel agency policies, that's how partners trust you.
Going forward, we will also support global partners to become superior local companies. In this way, it can bring along
even more high quality upstream and downstream partners to Pax. At the same time, we also need to promote
ourselves. In the last 5 years, we also hosted the global partner conferences in Guangzhou, Shanghai and recently in
Macau. It allowed PAX and our partners shared the latest development and insights. As you can see the photo in the
bottom left corner, which is PAX global partner conference, more than 100 partners joined the conference in Macau.
Started in 2019, we also organized regional conference, which is specialized for the business environment in that
region.
Second strategy is about our penetration. I think PAX is currently in a good position, our network covers over 100
countries. In the years to come, we will put more resources on those markets with great opportunities, for instance,
United states, European countries like UK, France and Spain, APAC, India, Japan, Australia. Investment could be in
the forms of setup our own subsidiaries and investing together with our local partners. Good examples are Japan, India.
We set up our subsidiaries in the last couple of years, and we enjoyed a very good growth. In the future, we will
strategically invest in those targeted countries when appropriate.

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 4 of 12
In some countries, our current coverage and network are light, e.g.Africa, middle east. We usually do business through
a regional partner or some indirect business contacts. We will reinforce our network in those areas. Again, our
procedures would include, set up our own subsidiaries, acquire the existing channels. We will also explore the
feasibility of setting up R&D and production bases locally. They need to be in line with the overall direction and local
knowledge of Pax. In 2019, we self-developed a cloud-based information exchange system with our global partners. It
is particularly useful under the current situation. We can communicate with our partners on real-time and remote basis
to provide technical support and information.
About our investment in R&D. Our investment in R&D has been and will always be our priority. And Diversity is key.
For hardware, like mentioned earlier, we look for a more diversified product line. We target to launch at least 3 to 5
products a year. In future, we will invest more on software and platforms. Two examples that we launched before. E.g.
1, PAXSTORE has more than 1,000 payment apps available for our partners to use. E.g. 2, Rhino, by using it, we can
help our customers to update the software of the payment terminals remotely. In the future, we hope software will bring
more revenue to PAX.
Slide no. 18 is about M&A. We made several investments in the past few years. We'll actively look for companies
which could have synergies with our business. We will focus on companies from stable markets, like Europe, US.
Meanwhile, we will actively look into investment opportunities with our existing partners.
Here comes to our financial targets. Due to COVID-19, forecasting 2020 is a very difficult task. In setting our financial
targets for 2020, we considered the uncertainty on global economy brought by COVID-19. Our FY2020 targets, the
overall topline is flattish, GP margin is over 39%, operating margin is over 15%. In terms of every different region, first
of all LACIS region revenue target is flattish, EMEA - low single digit growth, APAC - flattish, USCA - low single
digit growth and lastly in China region we expect to have around 10% drop.
We also set financial targets for the next three years. Our 3-year target considered the following factors: First, PAX will
take a hit from COVID-19, but it's smaller than our key competitors. Second, we believe the COVID-19 and changes in
global competition will bring a shuffling effect to the global payment terminal market. Third, PAX has focused on
payment terminals for years, it created an irreversible competitive edge for PAX. Fourth, the friction created by
Chinese competitors entering overseas is not big. Considering the points, I have mentioned. For 2021 and 2022, we
target to have low double-digit growth, operating margin with over 15%. Finally, I wanted to emphasize one more time.
In future, PAX will actively consider corporate actions to unlock the shareholder value.
This is the end of my presentation. I pass the time to Calvin.
Thanks for Ethan for sharing our financial highlights in 2019, corporate strategies and our financial targets. Now we
open the call up to questions.
Questions And Answers
Our first question comes from Kenny Chow. You may proceed.
Kenny Chow, Analyst
First of all, thank you for your presentation. My question is, early this year, there was an acquisition between Worldline
and Ingenico. I would like to know, what is the implication to PAX? That's my question.

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Current Quarter:
Current Year: 0.575
Current Quarter:
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Thank you Kenny for your question, our management is going to respond.
Ethan Cheung, CFO
Thank you for your question. Indeed, it's very relevant and important question to PAX. It will have a positive impact on
PAX. The reason behind is we already know that in 2018, one of our major competitors, the U.S. company, when it
was acquired by a PE firm. Immediately after six months, we already received a lot of active orders or invitation to
bidding process from customers in the United States and in European region. The reason behind is, when a supplier
switches their business from payment terminal into a processing business or service providing business, there're big
business risk for them that, directly competing with their customers. For the company size like the French competitor,
if you were customers of them, you directly competed with them, the first thing you'd think of would be looking for
another supplier to provide you payment terminals instead of continuing your business with the French competitor.
What we are expecting now is, that will not happen just in one night, but will happen in next few years while we expect
the people or customers in this payment terminal industry they will gradually shift from our big competitor, who are
actually competing with them now, to PAX. And we feel like, as you may probably heard about that, their emphasis
shifted from hardware to their service business. That's why we believe that the overall trend will happen in next few
years and definitely will bring results and good impact on PAX.
Thanks Ethan and thanks Kenny for your question. So next question comes from Gabriel Castro. You may proceed.
Gabriel Castro, Analyst
Hi everyone, congratulation on your result earning and presentation. You declared to us with 50% dividend increase
and with 3-year guidance. It shows the idea that the business is more resilient than the market believes. I have few
questions on my side. We have seen something like both Worldline and Ingenico got something like 15 times EBITDA
few week ago. Francisco partners acquired Verifone for around 10 times EBITDA last year. At the same time, PAX is
trading under its cash position which implied under its enterprise valuation. So my question is simple. Do you think
PAX's valuation today is fair compared to its main competitors. Is there something you justify a big discount? Why do
you think PAX values so low in contrast to Ingenico and Verifone? What are you going to do to close that gap? Thank
you very much.
Thanks Gabriel for your question. Our management is going to respond.
Ethan Cheung, CFO
Thank you, Gabriel. Thank you for your question. I probably think that as I always communicate with investors and
shareholders. I want to make it clear that I don't want to comment our valuation. I don't want to comment whether our
price is cheap. I believe every analyst and fund investor would have their own way to value a company. What I can say
when compare in the industry, I believe that our products and our company have a very strong competitive edge over
them. I have also mentioned in my presentation, right now I believe that because of the years of focus on our payment
terminal. right now, I can say, in terms of quality, definitely we're number one in the industry in the global prospective.
Especially now the stock market is a kind of panic about COVID-19. Of course, that's a reason for that. So I think right

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 6 of 12
now is not a good timing to say whether the valuation is fair or not.
In terms of your second part of the question, the valuation about PAX's business, I still believe in the long run, PAX we
can be the best branding and the best company in the industry. No matter what industries are, if you can be number one,
I think that's still a lot of meaning around number one position. So I think right now, in this difficulty time, we have
strong track record with ample cash on hand, we're at an even stronger position than majority of our competitors,
including the global competitors and Chinese competitors.
Thanks Ethan and thanks Gabriel for your questions. Our next question comes from Neeraj Mohandas.
Neeraj Mohandas, Analyst
First of all, we're happy to see you all healthy and keep safe. Here we in Spain, we have difficult time. Congratulations
on your results, in the world full of uncertainties, you're able to give a long-term guidance is amazing. So here is my
question, I'd like to have some colors in the buyback to understand the strategy behind it. You have been buying shares
above HKD4, now it's trading 25% cheaper. I know you could not buy it last month. I'd like to know what we can
expect in the next months. Thank you.
Ethan Cheung, CFO
Thank for your question, for the buyback. Let me give you some background. In last couple of years, I met different
investors. Some of them are our shareholders. We heard that investors recently requested to have more dividend and
repurchase. Last year end, December, we actually had the internal meeting and specifically discussed about this. As
your appreciated already, we did five times share repurchases, of course, we're not talking about huge amount when
compare to our market cap and cash balance. But we started this programme, please bear with me, I cannot give you the
precise number of shares and amount of money that we're going to use for buyback. But what we can say now is that,
we're actively looking into it. We'll actively to do corporate actions, including share dividend and repurchase in 2020
and in the next year. In terms of the logic behind, after all, share repurchase and dividend are the collective decisions of
the Broad, but some key factors that we're looking at, of course the share price, market situation. Honestly, I think in
the current situation now, even if you try to do some buyback, it may not be very helpful to this situation. We'll keep
monitoring the market situation and our stock price. And we'll actively consider to do share purchase when there's
appropriate timing.
Thanks Ethan and thanks Neeraj Mohandas' question. Our next question comes from Luca Franza.
Luca Franza, Analyst
Thank you. It's related to the first question about Ingenico transaction. If Ingenico would like to sell their POS business,
would you be interested in that case and how would you finance it. Thank you.
Ethan Cheung, CFO
Thank you for your question Luca. It's a big question. I can share with you that it's a strategical question that we've
discussed for a long time already. I heard that it's not an official announcement, I heard that from the market that seems

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 7 of 12
like the French competitor would like to sell the hardware business. Again, it's not a confirmed information, maybe that
could be just a rumor, but we have discussed internally, of course, even just the hardware business of Ingenico, the size
of that is much bigger than PAX. We also talked about which particular markets or areas that could complement with
our existing business. The good news is when we do our critical analysis in different key regions in the world, we
determine that there may not be too many synergies happen between PAX and them. Because right now I would say, as
I presented earlier, I think now we're at a very competitive position while compare to the majority of our competitors.
So I think we're now around up and coming. There's no very obvious synergy that would happen if we buy a competitor
that is actually not really focus on hardware business anymore. I cannot eliminate any chances in the future that we'll
have any form of solutions or cooperation working together. But at the moment I cannot see a very big synergy that
would happen if we acquire whole or part of their business. But we're open to look into more in depth context. Thanks.
Thanks Ethan and Luca's question. Our next question comes from Farrukh Edgarov. You may proceed.
Farrukh Edgarov, Analyst
My question has been addressed previously in terms of the buyback. I understand you mentioned you don't comment on
the valuation, whether your stock price is so cheap because every analyst come up with their own ideas what the
company worth but I think in this case regardless of which way you look at the company, whether on comparable basis
or in general, I think everybody would agree that the company is selling at a discount that it should not be selling at. So
I would encourage the management to continue, especially, at this price, to repurchase shares aggressively. My
question is whether any restriction and in terms of how large the buyback you guys can implement if there is any legal
restriction? Thank you.
Ethan Cheung, CFO
Thank you for your question. About share buyback, every year we have shareholder meeting and, in the meeting, we
will approve a limit of buyback or raise some new shares or share option scheme. Particularly, in terms of share
buyback, we can buy up to 10 % of the outstanding shares and what we did in 2020 so far, we bought around 1%. If we
continue to do that, there's still some room for us to work on in the future. I heard your feedback. When we try to
execute our share repurchase, we also need to take into account of the timing. Right now, it may seem like it's not a
perfect timing to do repurchase but we'll analyze and take reference of what other companies in the market are doing.
Thank you for your question.
Thanks Ethan and thanks Farrukh for your question. Our next question comes from Jon Ogden.
Jon Ogden, Analyst
If you can give us some outlook of demand on this year and next year in this strange environment, we found ourselves
in. Secondly, just in term of production the factory, how's that running now, availability of paths, no supply chain
getting fractured, you may need to get paths from Korea or places like that or other parts in China. If you have
encountered any problems with getting your products manufactured on time? Particularly problem in Latin America,
the fact the coronavirus is now there, I don't know heard much about that. Can you tell us a bit more why there is such a
different in price and margin between the product itself outside of China and inside of China? If you see competition
within China more apparent outside of China. If you can provide some outlook, units, sales guidance, margin. Thanks.

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 8 of 12
Ethan Cheung, CFO
I try to answer the first part about the guidance. We quickly switched back to slide no. 19. A quick recap, in 2020, we
will maintain a topline flattish, above 39% GP margin, above 15% OP margin. In 2021 and 2022, topline we expect a
low double-digit growth and OP margin will be above 15%. About your question about factory, I guess more about
overall supply chain and how the COVID-19 will affect that. In a general sense, we believe the impact on our supply
chain and suppliers will be short term. When we did our assessment by the end of February, and right now we did the
assessment again by the end of March, we feel like that it is a completely different story. I think no surprise the
situation changes every minute. Based on the current assessment we did by the end of March, we think that the issue of
supply chain that will affect everyone in the world. Because of our supply chain they are mainly in China, their
recovery and resumption of production capacity are actually surprisely quick, at least much quicker than we originally
expected in early February. We believe that everyone suffers from the supply chain problem. When we compare with
our competitor, I think we suffer less. There is a reason why when there is a recovery from the economy, we are more
than confident that we can entertain the sudden increase of demand of the payment terminals. That's why we continue
to say again that we are in a good competitive position when we compare to the market and everyone else.
Your third part of the question is about Latin America. Right now, we got a stable growth in Latin America. Base on
some statistic and news in Brazil, it seems like the COVID-19 and situation, the number is not serious. Someone
expects it will get worse. We believe just like other market, the impact on that will be like there will eventually come
back. The biggest question, who is the most well-prepared when the market comes back. I explained the competitive
edge that we have. Now we have plenty of resources, no matter of supply chain resources or cash flow. Looking at our
cash balance, we can basically support our operating expense for 2 or even more than 2 years, even if we do no
business. I am not saying we are going to stop our business. Just want to show we are in a good position to finance
whatever needed to catch up with the production and to catch up with the demand later on. I think Latin America and
Brazil, they will be the same as the rest of the world.
In your last part of question about China, the margin, you asked why margin in China is significantly lower, compared
with the rest of the world. I think there is 2 key factors. First one is about the competition, I can give you a general
overall insight about what is the competition that we are talking about in China. Right now, there are about 1,000
suppliers of payment terminals, they are basically doing the same thing and most of them are competing purely on cost.
There are many different ways manage their production in order to get cheaper cost in the market. I don't see any
foreseeable changes that will drive up the margin or pricing until there is a more stringent rule or regulation applied in
China market. Right now, I still haven't seen the sign. The second factor is about the movement of general traditional
products towards the low-end QR code scanner product. If you look at the shipment in China now, basically the
shipment maintains. The number of shipment and units increased year to year if you count the scanner machines.
Because the scanner machines they don't need to go through very stringent certification process, that's why the price is
cheap so as the cost and the entrance level for new competitors is also low. That explain to you why two factors
competitions and also the change in the product mix to a very low-end product. These 2 factors are the keys in China.
Would that situation will be replicated to overseas market and hurt our margin? The simple answer would be no
because China is a very distinctive market. People use QR code payment very frequently in China. Even though the
two conglomerates, they spent years, from now they want to invest and replicate the business model in China to Europe
and the States.
Investors from those countries could witness that some tourist areas or shops which are full of Chinese tourists, you
would see Alipay or Wechat pay accepted by those areas and shops. Except for those areas, you would not see Alipay
or QR code become the majority payment method in your countries, even in Hong Kong I don't see a trend of getting
high proportion or majority of people using Alipay or Wechat pay. Payment is related to culture. Alipay and QR code
payment can happen in China, but that will be different landscape in term of regulation and payment culture in different
countries. I won't foresee that would happen in other places in the world.

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Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
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Thanks Ethan and thanks Jon for your question. Our next question comes from Trung.
Trung, Analyst
How do you see PAXSTORE contribute to the revenue line in the future? Latin America has been a kind growth
segment in the last few years, could you give us some guidance how this region would perform in the next few years?
Ethan Cheung, CFO
Right now, for PAX business is about 4.9 billion of Hong Kong dollars. PAXSTORE we see some good signal but still
quite far away from that. We have our target to make it to become more meaningful proportional revenue to our
business. I would think it takes more than two to three years in order to make PAXSTORE revenue to get to a level of
5%. There is a potential for that, PAXSTORE is a platform equivalent to Apple Store, app store in your phone. We
basically create a platform and invite the third-party developers to develop their apps and use our platform. We are still
working with the developers and customers to formulate a charging plan for that. In the beginning, sometimes we offer
PAXSTORE for free for people to use or to attract people use the apps and our platform. Now we are actively
discussing with them what we could charge over this platform base on transaction or subscription fee. The revenue
model now quite vary case by case and country by country. There could be different ways of charging and that would
lead to some positive surprise in the future about the revenue from PAXSTORE platform. Maybe not directly from
PAXSTORE, maybe from apps developer - subscription fee or monthly fee in the future.
Second part of question about Latin America. Now we are no. 1 in Brazilian market. In Brazil, big acquirers and big
customers, we are talking about 10 to 20 customers. In 2020, most of the major acquirers they are doing business with
PAX. Because of the acquisition of our key competitor, the acquirers who did not work with PAX, they approached to
PAX early this year. We expect in realistic target would be the next couples of the year, almost all the acquirers will
become our customers. If we understand this landscape with this background, we think the growth in Brazilian market
in the couple of years would be quite stable. When I say stable, the fact we are already no. 1 in the market. It is not that
realistic to expect another 30% or 50% growth year on year. What we can say and foresee now is stable growth over
the years. The big uncertainty now is about the economy hit by COVID-19. In the next interim result, I think we can
give you a clearer picture what we are expecting the next few years. Now we have incorporated some prudence in our
guidance and we are confident to say that in next few years. In 2020, it would be flattish. In the next 2 years, we expect
there will be stable growth.
Operator
Thanks Ethan and thanks Trung for your question. Our next question comes from Louis Renou.
Louis Renou, Analyst
Can you explain your capital allocation on M&A because recently last year you did an investment in a small company
called Megahunt. And did not understand the rationale of it, can you explain why is so interesting for you guys, the
synergy and financial opportunity? The second one would be the current business. Do you see clients postpone orders
and scared about the microeconomy in different regions you are operating. The last one on the Android POS project,
please give the idea about the GP margin compare with traditional POS?
Ethan Cheung, CFO

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 10 of 12
About Megahunt, we invested around 20 million RMB in this company. This company is actually a supplier of electric
chips in China. We have been doing business with them more than five years already. We purchased 3 different kinds
of chips from them in China. We compare the chips price from Megahunt with overseas suppliers like in Taiwan and
the States. The price is 5 times less. That's why we can see this is a very value for money choice for us to choose
Megahunt as our supplier. Last year, we invested some money there, they want to expand this business and product
line. Due to the relationship and strategy that we want to secure better pricing from them in a long run. We invested
some money and to be one of their shareholders in a long run. This is a positive strategic move; it won't take a lot of
money. I also understand they have a listing plan. One of our strategies now is to support our support our business
partner to grow, so that they can bring more long-term benefit to us. This is in-line of what we have done in the past
and also in the next few years.
Can you please ask once again the second question?
Louis Renou, Analyst
My second question is on the behavior of bank clients you have; did they postpone any orders previously due to the
micro-environment. Did they push the orders from H1 to H2 for instance? Is it not all the case, and people order as
usual?
Ethan Cheung, CFO
We can see the market there is some postponement on the orders. Sometimes, it could be a bad point or a positive thing
in current situation. Some orders we received last year, they have been delivered in January or February this year.
Luckily, the orders I mentioned are in Europe and other countries. We actually delivered quite a lot shipment in
January and February. When we talk about future orders, let me first give you the background, when we work with
banks or acquirers worldwide, different countries different practice. In general, they give us yearly budget plan, here is
the shipment they want in this quarter or maybe this half year. It is not actually invoiced order, when it comes one or
two months before, they would confirm the orders and delivery timing for the orders. Because we are working in this
way, we understand what the demand of the whole country from that particular customer. We understand that right now
there is some postponement, but it's postponement only If that shipment does not happen in June, they would push to
August or September. Eventually if there are businesses in the country, they would need that shipment. It is just a
matter of timing when they would need that. The postponement would have some negative impact to our supply chain.
Given the situation for the whole world now, that would be an issue shared by all the people in this industry. It is not a
serious problem at this moment. Even there is a postponement in one month, two months or few months, PAX can
absorb this kind of postponement as long as the orders will be honored one day.
When we talk about Android products, there are two factors. The pricing of Android product, we can charge more as
we have the first mover advantages we took especially in the European markets. For sure the price will drop, at this
same time, we successfully transfer to some suppliers. Because our R&D cost and people are getting more mature and
technique in terms of handling Android products. And there are plenty of suppliers we can select from the market. Our
cost reduction programme is quite successfully recently as you can see on our improvement on gross profit margin in
2019. We expect the trend will continue. We are confident that the higher margin of the Android product can be
maintained in the next few years to come.
Thanks Ethan and thanks Louis for your question. Our next question comes from Massimo Antonello. You may
proceed.

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 11 of 12
Massimo Antonello, Analyst
In 2019, PAX generated massive amount of cash 1.2 billion compared to 200 million in 2018. Please explain how you
achieved this amazing result. What can we expect in the future in terms of cash flow generation?
Ethan Cheung, CFO
This is a very important question during current situation. Cash is king. We focus a lot on that in the past years. We got
a substantial increase in our cash balance. The most important factor that we improved our account receivables turnover
days. In 2018, we communicated with the market we put a lot of efforts across different departments, accounting,
financing, sales, credit team to push down the account receivables turnover day. It is not just happened in Brazil. Brazil
is the biggest debtor; we manage to get it better from year to year. Even in other regions, we put a lot of efforts
especially in China. If we compare the balance between two years, of course, it is not completely an apple to apple
case, but more than half of the cash increase is due to the decrease in account receivables turnover days and balance.
The second point would be contributed organically by increase of our net profit. These are the two key reasons why we
got good results in terms of cash. Looking ahead in the future, some key factors about our cash flow would be our
working capital management, and the currency risk. We have a target to maintain current account receivable turnover
days or try to further improve. The currency risk, we are not taking any currency risk directly, we do most of our
business in USD, RMB or EUR. Normally we don't take local currency risk. Our partners take up the currency risk.
Like our partner in Brazil, the currency in Brazil right now could be quite fluctuating, if this fluctuation continues
during the year, it will take longer time for us to collect cash debt from our partner. This is the uncertainty whether we
can achieve this level of working capital.
Thanks Ethan and thanks Massimo for your question. Our next question comes from Farrukh Edgarov.
Farrukh Edgarov, Analyst
Now the business has been shifted from the Chinese market over the years. Have you thought about getting listed
elsewhere like New York or London?
Ethan Cheung, CFO
We have discussed this internally before. Right now, we have no plan to do this. Personally, think that there is still have
a benefit listing in Hong Kong. One of the key reasons of listing is to gather more cash or brand reputation in local
market. About the cash, I don't see a motivation for PAX. For the second one, we are building our image gradually
across the world. It may not be cost efficient to list in other places to promote PAX. At this moment, we have no plan
and intention to get second listing status in other place of the world.
Thanks Ethan and thanks Farrukh Edgarov. And this concluded the Q&A section. I would like to thank everyone for
participating this call.
Ethan Cheung, CFO

Date: 2020-03-31
Current PX: 2.92
Current Quarter:
Current Year: 0.575
Current Quarter:
Page 12 of 12
Thank you everyone. I wish everyone stay safe and healthy. Thank you.
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