Silverlake Axis - RHB Invest 2015-11-16: Positive Catalysts Ahead

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SILVERLAKE AXIS LTD 5CP.SI 

Silverlake Axis (SILV SP) - Positive Catalysts Ahead 

• Positive 1Q16 results, with topline increasing 12.7% YoY. 
• NPAT rose 14.9% YoY to MYR68.6m, partially aided by a MYR14.2m forex gain due to the SGD and USD appreciation. 
• Maintain BUY with a higher SGD0.75 TP (from SGD0.62, 15% upside) based on a 17x FY16F P/E. 
• It also declared an interim dividend of SGD0.006 per share. 
• In view of the positive results coupled with catalyst like potential share buybacks ahead, we lift our FY16 estimates by 6.3%. 

 Positive 1Q16 aided by FX gains. 

• Silverlake Axis’ (Silverlake) positive 1Q16 results were partially aided by a MYR14.2m forex gain with the appreciation of the SGD and the USD against the MYR. 
• 3Q15’s revenue rose 12.7% YoY to MYR131m while its net profit after tax (NPAT) rose 14.9% YoY to MYR 68.6m. 
• Maintenance and enhancement services continue to see a strong growth of 23% YoY while software project services also surged 109% YoY. 
• However, gross profit margin eased to 60% in 1Q16 due to lower contribution from its higher margin software licensing, which declined 42% YoY. 

 Two new contracts with Vietnamese banks. 

• Its subsidiary, SunGard Ambit Singapore’s (SAS) earnings should be consolidated from 2Q16 onwards. 
• The two new contracts secured with Vietnamese banks signify a new breakthrough into the ASEAN market. SAS had not managed to do before being bought over by Silverlake, with its customers mainly in Pakistan, Bangladesh and Europe. 
• SAS is expected to assist the two Vietnamese banks in its IT transformation, which is likely to contribute positively to Silverlake’s FY16’s earnings. 
• Going forward, management expects the merged synergies to result in some positive cost savings and margin improvements for SAS of about 10-15% in the first year. 

 Positive catalysts to come – Share buybacks & Deloitte report. 

• So far in 2015, Silverlake has spent SGD15m on share buybacks. Management has guided that these buybacks would likely continue going forward. 
• Next, the Deloitte audit report, which commenced fieldwork six weeks ago, is likely be completed by the end of November. 

 Maintain BUY with a higher TP of SGD0.75. 

• With the positive catalysts ahead and backed by a c.MYR200m orderbook, we lift our FY16 estimates by 6.3%, and raise our TP for Silverlake to SGD0.75, based on a 17x FY16F P/E. 
• Maintain BUY.

Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2015-11-16

RHB Research SGX Stock Analyst Report BUY Maintain BUY 0.75 Up 0.62