SILVERLAKE AXIS LTD 5CP.SIDisappointing 4Q15 reflects challenging outlook
- Excluding one-off gain of RM19.2m, 4Q15 net profit of RM55.5m (-26% y-o-y, -28% q-o-q) would have been 40% below our estimates due to drop in licensing revenues
- FY16F/17F EPS cut 28%/35% due to challenging outlook for the banking sector in Asia, coupled with SILV's weak order backlog
- Maintain Fully Valued with revised TP of S$0.48. We are ceasing coverage of the counter post this note.
Lower software licensing hurt bottom line.
- 4Q15 revenue of RM126.4m (-8% y-o-y, -12% q-o-q) was lower than expectations. High-margin software licensing revenue dropped 41% y-o-y to RM30m. Besides, there was a one-time accounting gain of RM19.2m from the listing of its Chinese associate, Global Infotech Co. Ltd. On a full-year basis, related parties accounted for 29% of FY15 revenue vs 24% last year. Order backlog for licensing & customised software stood at ~RM210m versus ~RM270m last year.
Challenging outlook for banks implies that big licensing contracts may be difficult in FY16.
- Singapore banks have ~22% of their pre-tax profits coming from Greater China region where economic prospects are uncertain. Sharp weakness in Malaysian Ringgit and Indonesian Rupiah have compounded the worries of Malaysian and Indonesian banks struggling with weak economic growth.
- We model SILV to secure RM150m of new orders for licensing and customised software in FY16F (~RM140m in FY15) but we expect gross margins to decline leading to flattish earnings in FY16F.
Cut valuation to 15x FY16F.
- Since we downgraded SILV in late May, the counter has declined c.50%. We pegged SILV’s valuation at 15x FY16F PE, at a discount to its global peers' average of 18x as growth slows down. SILV’s operating margins, which exceed 50% vs peers' margins of 20-40%, may not be sustainable in the long term.
- Maintain Fully Valued with a lower TP of S$0.48 based on 15x FY16F PE.
Sachin MITTAL | http://www.dbsvickers.com/ DBS Securities 2015-08-28
0.48
Down
0.90
