SILVERLAKE AXIS LTD
5CP.SI
IPT Overhang May Cap Upside
- 4Q15 below on lower-than-expected licensing & project service sales. Cut EPS by 15-18% for this.
- Market remains concerned about IPT transactions.
- Maintain HOLD pending better IPT disclosure, with support expected from healthy 96% payouts. Lower TP to SGD0.61 from SGD1.15, 30% discount to DCF to reflect IPT overhang.
4Q15 below, no major contracts on the horizon
- 4QFY6/15 net income of MYR74.7m was below at 92% of our estimates. A final distribution of 1.2 SGD cts translates to a FY15 payout of 96%. Full-year revenue was flat (+3% YoY) with bottom line flattered by MYR19.2m gains from its sale of stake in Global Infotech (Not Rated) during its recent IPO.
- Management offered the consolation that although banks are unlikely to incur major capex in the near term, they will still require minor upgrades. Order backlog of MYR200-220m is expected to provide revenue visibility for FY16.
Maintain HOLD; IPT may cap upside
- We cut FY16-17 licensing and project service sales from MYR250- 290m to MYR220-235m due to a lack of new contracts. As a result, we cut EPS by 15-18%.
- We also updated MYR/SGD assumptions to 3.00 from 2.60 following recent MYR weakness. SAL’s costs are mostly in MYR but it collects part of its revenue in SGD and USD. This implies net benefits from a weaker MYR.
- Share price is down a sharp 40% in the past three months on concerns over interested-person transactions (IPT) between SAL and private entities under its chairman (FY6/15: 29% of sales, 23% of costs). Hence, even though our new DCF valuation (WACC 9.3%, TG 3%) suggests a fair value of SGD0.87, down from SGD1.15 after our EPS cuts, we doubt that there will be a re-rating before any improved disclosure.
- We now apply a 30% discount to our DCF valuation to reflect this overhang. This lowers our TP to SGD0.61 from SGD1.15.
Derrick Heng CFA | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14
0.61
Down
1.15
