Silverlake Axis - Expect a Weaker FY17 Despite Upbeat 2HFY17 Outlook
- We expect Silverlake to enjoy a better 2HFY17 going forward, with new projects from Thailand and Vietnam kicking in. However, even with a more upbeat 2HFY17, we still expect it to book a weaker performance for FY17 due to the lack of larger contract wins.
- As a result, we lower our FY17F NPAT by 10% and trim our DCF-backed TP to SGD0.70 (from SGD0.77, 17% upside).
- Despite that, we are still optimistic on the company’s long- term aspects as well as its ability to weather the current tough macro- economic environment. Maintain BUY.
Roadblocks in core business.
- Amidst a challenging economy in which banks are cutting costs, Silverlake Axis (Silverlake) has not been winning large core banking contracts.
- Also, its small- and mid-sized contract wins have not been sufficient to make up for the shortfall. As a result, the performance of both its project services and licensing segments has declined.
- Going forward, we expect these segments to pick up in 2HFY17 (Jun), with a few key upgrading works in the pipeline as well as a scheduled project for a bank in Thailand. Despite that, we still expect it to record a weaker FY17F.
Special dividend payouts likely to be spread to FY18.
- Silverlake has fully disposed of its intended allocation-for-sale Global InfoTech Co Ltd (GIT) shares and recorded a gain of up to MYR393.8m.
- We noted previously that the transfer of proceeds would take longer than expected due to the procedures involved, as the maximum transfer limit is USD5m a month. We expect this transfer process to take longer than one year, ie the special dividend payouts would be made through out two financial years, ie FY17 and FY18.
Maintain BUY, with a lower DCF-backed TP of SGD0.70.
- As we still expect Silverlake to book weaker FY17 results due to the lack of larger contract wins, we cut our FY17F NPAT by 10%. As a result, our DCF-backed TP dips to SGD0.70, from SGD0.77.
- In spite of this, we remain optimistic on the long-term aspects of the company, as well as its ability to weather the current tough macro-economic environment.
- Maintain BUY.