Silverlake Axis Ltd - CIMB Research 2015-12-09: What will Deloitte say?

SILVERLAKE AXIS LTD 5CP.SI

Silverlake Axis Ltd - What will Deloitte say?

Not expecting major order wins in the short term.
Longer-term opportunities from banks needing to digitise their operations.
Fintechs may pose some challenge.
Deloitte’s independent review report on short-seller allegations expected soon. Could be a share price catalyst.
Maintain Hold.

In the short term, Silverlake does not expect banks to have the appetite to place major new orders for core banking software.
Revenue growth will come from MES (~20% growth expectations) and Software Project Services. The possibility of smaller order wins remains.

In the longer term, Silverlake believes that the previously expected large order win from RHB is still a possibility.
The company also sees opportunities in the region as banks invest in digital technologies to drive revenue growth, manage costs and provide easy banking access to customers.
China also presents a huge opportunity for Silverlake though it is a challenging market.

Financial technology, also known as Fintechs, is a line of business based on using software to provide financial services.
Financial technology companies are generally startups founded with the purpose of disrupting incumbent financial systems and corporations that rely less on software.
OCBC and UOB have both made initial investments into Fintechs.

The market is also awaiting the findings of the Deloitte study commissioned by Silverlake in response to a previous short-seller report. This report is expected to be out by end-Nov 2015 at the earliest.
The findings and suggestions which Silverlake may adopt will help investors better assess how to value the company.

The Deloitte report could be a short-term catalyst. Our numbers will have upside risk as we are less bullish than consensus on new order wins and we have also yet to factor in contributions from Silverlake’s new acquisition.
Our target price of S$0.65 is DCF-derived (WACC:11.7%).
Dividend yields of 4.1-4.8% in FY15-17 are backed by strong free cashflow (minimal capex) and a net cash balance sheet.
Unless there are changes to its business structure, Silverlake’s high dividend payout ratio should continue.

William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.65 Same 0.65