Silverlake Axis Ltd - CIMB Research 2016-05-13: 3QFY16 in line

SILVERLAKE AXIS LTD 5CP.SI

Silverlake Axis Ltd - 3QFY16 in line

3QFY6/16 core net profit in line with our forecast but below consensus. 9MFY16 core net profit within expectations, at 73% of our FY16 forecast.
FX impact contributed 9% to the yoy increase in 3QFY16 revenue.
0.65 Scts DPS declared, translating to 83% payout ratio.

Balance sheet in net cash position at end-3QFY16.
Upgrade to Add as total return exceed 10% once again; recent share price fall mirroring weak global sentiment on equities.

3QFY16 core net profit was in line with our expectation (25% of FY16 forecast) but below consensus (22%).
9MFY16 core net profit was in line with our (73%) but below consensus (66%) estimate.
Management said the appreciation of the S$ and US$ against the RM contributed ~9% to the revenue increase in 3Q16 and 10% in 9M16.
The Symmetri Group, the acquisition of which was completed on 1 Oct 2015, contributed 7% to the group’s revenue but was a slight drag on profits (it suffered a small loss).

In 3QFY16, software licensing revenue expanded 32% yoy while software project services revenue jumped 87% yoy. However, maintenance and enhancement services revenue fell 6% yoy.
On a 9-month basis, software licensing sales fell 14% yoy but the rest of the segments posted higher sales.
Gross profit margin fell to 57% in 3Q16 versus 68% in 3Q15 due to the consolidation of Symmetri Group’s business, which command lower margins than Silverlake’s.

Silverlake guided that its customers are likely to expand their businesses in a more cost effective manner.
We believe that given the soft economic outlook, financial institutions are unlikely to embark on large expansionary IT capex at this juncture.
In our view, revenue growth opportunities for Silverlake is likely to come from customers enhancing their existing software systems and implementing digital and mobile technologies to deliver quick but effective solutions to meet their needs.

Silverlake’s balance sheet remains net cash at end-Mar 2016 and a DPS of 0.65 Scts was declared for 3QFY16, representing a payout ratio of 83% of 3QFY16 earnings.
With the share price having taken a tumble in line with weak equities markets globally, total return has once again exceeded 10% and hence, we upgrade our call from Hold to Add.
Our target price (S$0.60) is based on DCF.

William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-05-13

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