Silverlake Axis Ltd - CIMB Research 2017-06-02: Merimen Launches A New Product

Silverlake Axis Ltd - CIMB Research 2017-06-02: Merimen Launches A New Product SILVERLAKE AXIS LTD 5CP.SI

Silverlake Axis Ltd - Merimen Launches A New Product

  • We spoke with Silverlake’s Investor Relations following the company’s announcement of a new product yesterday.
  • We also took the opportunity to gain a better understanding of the tax impact on one-off items.
  • This leads to a change in 3Q17 core net profit from a loss of RM7m to a core net profit of RM40m. Hence, we raise our FY17F core EPS forecast by 100%.
  • However, our FY18-19F forecasts are unchanged. We maintain our Add call with a DCF-based target price of S$0.65 (WACC: 11.4%).



Merimen launches new product 

  • Silverlake’s insurance processing subsidiary Merimen has officially launched its newest offering, TrueSight Analytics (“TrueSight”). 
  • TrueSight provides insurers with comparative analysis of parts pricing, labour pricing and turnaround time among vendors and service providers. The data can be used to benchmark, measure and improve claims indicators.
  • Merimen won the first customer for this product in Indonesia and is now extending TrueSight to its regional customer base.


A better understanding of taxation charges on one-off items 

  • In getting an update on Merimen’s latest product launch, we also took the opportunity to obtain a better understanding of the tax impact on Silverlake’s one-off items in its 9M17 results and the relevant tax adjustments. 
  • Arising from taxation changes, 3Q17 core net profit is adjusted to RM40m from a loss of RM7m previously. Hence, we raise our FY17 core EPS forecast by 100% as we separate the tax impact from the one-off items.


Could things bottom out in FY17F? 

  • Software Licensing Revenue (SLR) has been on the decline since 4Q16. 2Q17 and 3Q17 SLR were the lowest since 1Q13. Software Project Services Revenue (SPSR) hit a record of RM36.1m in 2Q16 but has been on the decline since then. Silverlake has commented that it is continuing to respond to requests for proposals for core IT replacements. 
  • Given that key customers seem to have seen the worst from the impact of the Oil & Gas downturn, we opine that the prospect of new order wins is increasing.


Potential acquisition of Mr Goh’s private entities 

  • On 8 Mar 17, Silverlake announced that Mr Goh has asked Silverlake to express its possible interest in acquiring his shareholdings in various private entities. Silverlake has submitted a non-binding letter to Mr Goh indicating its interest in further exploring this potential opportunity. 
  • In our view, investors are likely to react positively if this acquisition is financed via the issuance of new Silverlake shares.


Maintain Add 

  • Although our core EPS for FY17F is affected by the tax impact on one-off items, there are no other changes to our FY18-FY19F forecasts. 
  • Our Add call and DCF-based target price of S$0.65 (WACC: 11.4%) are intact. 
  • Downside risk is longer-than-expected recovery in customers’ orders.




William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-06-02
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.650 Same 0.650



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