RHB Securities 2015-08-27: Silverlake Axis - A Silver Opportunity.

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SILVERLAKE AXIS LTD 5CP.SI

A Silver Opportunity

• FY15 was disappointing and we lower our FY16F earnings by 6.7%, to account for higher administration expenses and lower licensing and project sales; management is also refuting all allegations and is hiring Deloitte to undertake an independent review on Silverlake and related private entities. 
• Sentiments aside and solely based on valuations we think the current price levels look attractive and upgrade to BUY based on a conservative 14x FY16F P/E TP of SGD0.58. 

 Disappointing FY15 (Jun). 

• FY15 revenue and NPAT grew by 3% and 14% YoY to MYR337m and MYR282.7m respectively. Revenue growth was lower mainly due to the smaller hardware sales as compared to FY14. 
• However, mainly due an increase in administrative expense and a MYR19.2m accounting gain on dilution of interest in an associate in China following its IPO, recurring NPAT only grew by 7% YoY. 

 Engaging Deloitte to undertake an independent review. 

• Management has refuted all adverse allegations in a short-seller’s report, stating that the claims were baseless and without merit. Silverlake Axis (Silverlake) also reinforced the fact that these related party acquisitions have benefited the company with net profit, cash flow, DPS and market cap growth. 
• Management is also engaging Deloitte Singapore to undertake an independent review of the allegations concerning the related party transactions and Silverlake-related private entities as well as the associated profit margins referred in the report. 

 Silver opportunity – upgrade to BUY. 

• The share price has collapsed by > 50% in the last few weeks and we think that – solely based on fundamentals with sentiments aside – this is an opportunity to accumulate Silverlake’s shares at an attractive level. We have already conservatively cut our FY16/FY17 licensing and project services sales to MYR220m due to a lack of new contracts, resulting in our recurring NPAT to only grow by 5.2% in FY16. However, at the current price levels, the stock is only trading at 11.1x FY16 P/E coupled with a potential > 8% yield. 
• Silverlake’s core banking solutions offerings can be verified as they are currently being used by first-tier Singaporean, Malaysian and Indonesian banks. As such, we upgrade our call to BUY based on a conservative 14x FY16F P/E which results in a TP of SGD0.58.

Jarick Seet | Edison Chen | http://www.rhbgroub.com/ RHB Securities 2015-08-27

BUY Upgrade NEUTRAL 0.58 Down 1.27