The performance is in line with market expectations, and R&D investment is increasing
The turnover of PAX in the first half of 2013 was HK$631 million, a year-on-year increase of 19%. In the first half of the year, the gross profit margin was 35.5%, down 3.9 percentage points year-on-year, but up 2.9 percentage points quarter-on-quarter. The total investment in research and development was HK$37.9 million, a year-on-year increase of 22%. Net profit for the half year was HK$90.8 million, up 9% year-on-year. The EPS was HK$0.087, up 9% year-on-year. We believe that the results are in line with expectations; increasing R&D investment will enable the company to maintain its gross margin advantage and in line with the company's long-term interests.
China's third-party payment customer-driven growth
Revenue from third-party payment customers in the first half of 2013 was HK$245 million, an increase of 88% year-on-year, and POS sales volume was 310,000 units, an increase of over 100%. This shows that third-party payment customers have become an important source of growth for the company. China's current POS machine holdings are about 7 million units, while the United States and Canada's relatively sparsely populated countries have installed more than 13 million units. We believe that the third-party payment competition will stimulate the penetration of the POS machine in China, especially in the second- and third-tier cities with low POS holdings, which will bring considerable benefits to the company. The space for sales growth.
Optimistic outlook for overseas POS market
The company's sales performance in Nigeria will be reflected in the second half of the year, with an estimated shipment of approximately 30,000 units. In the second half of the year, the company will continue to supply in countries with large population bases such as Brazil and India. The overall growth of overseas sales this year is expected to reach 30%. The gross profit margin of the company's overseas business is generally high, and is expected to reach more than 50%. We believe that with the growth of domestic third-party payments and overseas markets, the company's 13-year performance is likely to exceed market expectations.
Raise TP to HK$3.18 and maintain BUY rating
Taking into account the further determinism of third-party payment and overseas market prospects, as well as the company's cash flow characteristics, we use DCF valuation method (WACC=12%, g=1%) to get the company's 2013 cash flow discounted. The value is HK$3.18, which is equivalent to 11.9x of 14-year earnings per share, maintaining a BUY rating.
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