Pax Global - a value stock trading at below net current asset with an attractive dividend
Pax Global (00327.HK) recently announced its results for financial year ending 31st December 2024. In this blog post I am sharing a brief review of the company and its financial performance based on the results announcement. Note that the discussion below references a stock price of 4.89HK$ per share that translates into a market cap of 5.192 billion HK$.
Pax Global (00327.HK) is a company listed on the Hong Kong Stock Exchange that is “principally engaged in the development and sales of electronic funds transfer point-of-sale (E-payment Terminals) products, provision of maintenance, installation and payment solution services.
Summary of key points
- Revenue decreased by 9.9% to HK$6,044.9 million, but the dividend yield is around 10.02%, above the 8% target for dividend investors.
- The company shows strong liquidity with a current ratio of 5.04 and a quick ratio of 4.04, suggesting financial stability.
- It seems likely that future dividends will be sustainable, given strong cash flow from operations of HK$1,162.7 million.
- The company has a net current asset value of 6.131 billion HK$ providing a siginficant safety margin over its market capitalization of 5.192 billion HK$.
- The adjusted price-to-earnings ratio, after subtracting net cash, is approximately 2.95, indicating potential undervaluation.
Review of Pax Global’s Results Announcement for Year-End 31 December 2024
PAX Global Technology Limited’s financial results for the year ended 31 December 2024 show a mix of challenges and strengths, particularly relevant for dividend investors seeking value stocks with sustainable yields of 8% or more.
Business Overview and Performance
The company, a leader in payment technology, faced a 9.9% revenue drop to HK$6,044.9 million due to global economic slowdowns and cautious client behavior. However, it maintained focus on Android smart payment terminals and SaaS solutions, with regional performance varying: strong growth in India and Japan, but slower sales in Brazil. Management aims to expand into markets like the U.S. and Europe, leveraging new products for future growth.
Financial Health and Dividends
Despite lower profits, PAX increased its dividend to HK$0.49 per share from HK$0.44, yielding about 10.02% at the current stock price of HK$4.89, well above your 8% target. The company’s liquidity is robust, with a current ratio of 5.04 and quick ratio of 4.04, and cash flow from operations surged to HK$1,162.7 million, supporting dividend sustainability. However, the payout ratio rose to 73.2%, up from 40.6%, which might raise concerns if earnings don’t recover.
Investment Metrics
For value investors, an unexpected detail is that the stock qualifies as a net working capital company per Benjamin Graham, with a stock price below its net current asset value per share of about HK$5.75. After adjusting for net cash, the price-to-earnings ratio is around 2.95, suggesting the stock may be undervalued. With a market cap of HK$5.192 billion, this low P/E ratio could appeal to those seeking undervalued stocks with strong dividends.
Suitable for Dividend Profolio?
Given the attractive dividend yield, strong liquidity, and value metrics, the stock certainly makes an interesting proposition for dividend investors, though future earnings growth is uncertain and depends on new product success. It’s certainly not a buy and forget stock. Any investor will have to monitor future earnings trends closely.
Comprehensive Financial Analysis Report
PAX Global Technology Limited’s financial results for the year ended 31 December 2024 provide a detailed picture of its operations, financial health, and strategic direction, particularly relevant for dividend investors seeking value stocks with sustainable yields of 8% or more. This report expands on the key points, offering a thorough analysis for informed decision-making.
Business Overview and Industry Trends
PAX Global Technology Limited is a global leader in payment technology, specializing in Android smart payment terminals and Software as a Service (SaaS) solutions. The company operates in a challenging industry environment marked by a slow global economic recovery in 2024, characterized by high interest rates and a strong U.S. dollar. These conditions led to cautious payment terminal deployments among international clients, impacting revenue. Management highlighted a focus on innovation, particularly in Android-based products and SaaS platforms, to enhance merchant agility and digital competitiveness. The shift toward cashless payments globally presents opportunities, but macroeconomic uncertainties pose risks.
Performance Across Business Regions
The company’s performance varied by region, reflecting diverse market dynamics:
EMEA (Europe, Middle East, and Africa): Generated the largest revenue at HK$2,202.9 million, with strong sales in Italy, the UK, France, and Southeast Europe. However, demand was volatile in Germany and Spain, while the Middle East and Africa showed growth potential, particularly in Saudi Arabia and West Africa.
LACIS (Latin America, Caribbean, Iberia, and Sub-Saharan Africa): Sales slowed in Brazil due to macroeconomic pressures and a transition to a more stable phase in the payment terminal industry. Mexico and Argentina emerged as key markets, with growing demand for Android terminals like the A910.
APAC (Asia Pacific): Saw robust growth in India, Japan, and Indonesia, driven by cashless payment trends and UPI QR code solutions (e.g., CS70, CS75). Some Southeast Asian markets experienced slowdowns, but expansion in Australia and New Zealand was boosted by acquiring Pax Technology Australia in September 2024.
USCA (United States and Canada): Experienced an initial slowdown in Q1 2024 due to cautious investments, but recovery in the second half drove sales growth, with strong demand for products like the A920Pro and Elys series.
This regional diversity highlights PAX’s global footprint but also its exposure to varying economic conditions.
Management’s Strategic Direction
Looking forward, PAX’s strategy centers on innovation and market expansion. The company plans to enhance its Android payment terminal portfolio (e.g., A920Pro, A8900, A99, IM25) and Electronic Point of Sale (EPOS) solutions (Elys series) for retail and hospitality. SaaS solutions, including the MAXSTORE platform, saw a 30.5% revenue increase to HK$138.2 million, connecting over 14 million terminals, and management aims to further develop this ecosystem. Strategic initiatives include mitigating foreign exchange risks with a U.S. dollar settlement strategy, improving financial resilience through credit management, and pursuing acquisitions to strengthen the global sales network, particularly in the U.S., Europe, Japan, and Australia.
Financial Review
The financial performance for 2024 reflects both challenges and resilience, detailed below through the income statement and balance sheet analysis.
Income Statement Analysis
The consolidated income statement for 2024, compared to 2023, shows:
| Item | 2024 (HK$’000) | 2023 (HK$’000) | Change (%) |
|---|---|---|---|
| Revenue | 6,044,878 | 6,709,324 | -9.9% |
| Cost of Sales | (3,191,489) | (3,715,323) | -14.1% |
| Gross Profit | 2,853,389 | 2,994,001 | -4.7% |
| Other Income | 85,372 | 95,126 | -10.3% |
| Selling and Distribution Expenses | (772,428) | (674,479) | 14.5% |
| Administrative Expenses | (1,317,994) | (1,171,459) | 12.5% |
| Other Gains/(Losses) | 6,963 | (1,443) | N/A |
| Profit Before Tax | 861,245 | 1,253,964 | -31.3% |
| Income Tax Expense | (140,323) | (88,861) | 57.9% |
| Profit for the Year | 720,922 | 1,165,103 | -38.1% |
Revenue Decrease: The 9.9% drop to HK$6,044.9 million was driven by global economic headwinds, cautious client behavior, and a 11.2% decline in E-payment Terminal sales, partially offset by an 18.9% increase in service revenue (e.g., maintenance, SaaS).
Gross Profit Margin Improvement: Despite lower revenue, the gross profit margin rose to 47.2% from 44.6%, a 260 basis point increase, due to lower costs from Renminbi depreciation and a favorable sales mix.
Expense Increases: Selling expenses rose by 14.5% due to higher sales commissions and advertising costs, reflecting efforts to boost sales in a challenging market. Administrative expenses increased by 12.5%, primarily from a 6.1% rise in R&D costs (HK$683.5 million) and share-based payments, underscoring innovation focus.
Profit Decline: Profit before tax fell by 31.3% to HK$861.2 million, and profit for the year dropped by 38.1% to HK$720.9 million, with profit attributable to owners at HK$713.4 million, reflecting the impact of lower revenue and higher expenses.
Dividends: The company declared an interim dividend of HK$0.24 and proposed a final dividend of HK$0.25, totaling HK$0.49 per share for 2024, up from HK$0.44 in 2023, despite lower profits.
Balance Sheet Analysis
The consolidated balance sheet as of 31 December 2024 shows:
| Item | 2024 (HK$’000) | 2023 (HK$’000) |
|---|---|---|
| Total Non-Current Assets | 1,523,386 | 1,522,108 |
| Total Current Assets | 7,646,119 | 7,553,221 |
| Total Assets | 9,169,505 | 9,075,329 |
| Total Equity | 7,564,587 | 7,486,174 |
| Total Non-Current Liabilities | 89,759 | 100,340 |
| Total Current Liabilities | 1,515,159 | 1,488,815 |
| Total Liabilities | 1,604,918 | 1,589,155 |
Liquidity Metrics: The current ratio (current assets / current liabilities) is 5.04 (HK$7,646.1 million / HK$1,515.2 million), and the quick ratio ((current assets - inventories) / current liabilities) is 4.04 ((HK$7,646.1 million - HK$1,527.0 million) / HK$1,515.2 million), both indicating strong liquidity.
Cash Position: Cash and cash equivalents increased to HK$3,083.6 million from HK$2,863.6 million, supporting financial flexibility.
Financial Strength: The debt-to-equity ratio is 0.21 (HK$1,604.9 million / HK$7,564.6 million), reflecting a low leverage position and financial stability.
Net Current Assets: Calculated as HK$6,131.0 million (HK$7,646.1 million - HK$1,515.2 million), providing a buffer for operations.
Earnings Sustainability and Future Dividend Implications
Dividend Payout Ratio: In 2024, the payout ratio (total dividends / profit attributable to owners) is approximately 73.2% (HK$522.4 million estimated dividends / HK$713.4 million profit), up from 40.6% in 2023, indicating a higher distribution of earnings. This increase, despite lower profits, suggests a focus on shareholder returns, but sustainability depends on future earnings.
Cash Flow Support: Net cash from operating activities rose to HK$1,162.7 million from HK$490.0 million, providing strong cash flow generation to support dividends. The company’s robust cash balance of HK$3,083.6 million further enhances this capability.
Sustainability of Future Dividend: Given the proposed final dividend of HK$0.25 per share for 2024 and the trend of increasing dividends, it seems likely that PAX may maintain or slightly adjust the dividend in 2025, potentially around HK$0.50 per share, assuming stable or improving earnings. However, this is speculative and depends on market conditions and operational success.
Conclusion for Dividend and Value Investors
For investors seeking a value stock with a sustainable dividend yield of 8% or more:
Current Dividend Yield: At a stock price of HK$4.89 and a total dividend of HK$0.49 per share, the yield is approximately 10.02%, exceeding the 8% threshold.
Value Metrics: The price-to-earnings ratio, after adjusting for net cash (market cap of HK$5,192.0 million - cash and equivalents of HK$3,083.6 million = adjusted market cap of HK$2,108.4 million, divided by profit attributable to owners of HK$713.4 million), is approximately 2.95, suggesting significant undervaluation.
Net Working Capital Status: The net current asset value per share is about HK$5.75 (HK$6,131.0 million net current assets / approximately 1,066.4 million shares), and with a stock price of HK$4.89, it qualifies as a net working capital company per Benjamin Graham’s criteria, appealing to value investors.
Conclusion: Given the attractive dividend yield, strong liquidity, and value metrics, the stock definitely has a strong appeal to both value and dividend investors. However, the diligent investor will be well advised to monitor earnings trends, as the recent profit decline and high payout ratio could pose risks if new product strategies do not yield growth.
Disclaimer: This article is a record of the thinking behind a personal investment decision. It does not represent any recommendation to purchase any stock mentioned in the article. As always, readers are strongly advised to do their own due diligence before making any investment decisions.