Silverlake Axis - RHB Invest 2016-05-13: A Silver Lining Anticipated In 4Q

Silverlake Axis - RHB Invest 2016-05-13: A Silver Lining Anticipated In 4Q SILVERLAKE AXIS LTD 5CP.SI 

Silverlake Axis - A Silver Lining Anticipated In 4Q

  • We expect a better 4Q ahead for Silverlake in the absence of the post- acquisition one-off costs. 
  • We also predict that the company may reward its shareholders with a special dividend if it does sell a portion of its stake in its China associate. 
  • Going forward, we do expect margins from Symmetry to continue improving as it tunes its cost structure. 
  • Maintain BUY with a lower DCF-backed SGD0.68 TP (from SGD0.75, 24% upside) after adjusting for the additional one-off costs.

Merimen expansion. 

  • Merimen has expanded into Vietnam, Philippines and Thailand. To date, it has won more than five new accounts from insurance companies in these three countries with a growing pipeline extending into 2016.

Potential special dividend. 

  • Silverlake Axis (Silverlake) has a 20% stake in a Chinese associate worth about SGD600m. It has had a year-long moratorium that expires on 28 May. If the sale of that stake does happen, we think Silverlake would most likely return the excess cash to its shareholders unless it embarks on a major acquisition. 
  • However, we are also made to understand that for the sale to proceed, any shareholder with > 5% stake would need to officially state his intention to sell within the six-month period after the moratorium ends. 

Maintain BUY with a lower DCF-backed SGD0.68 TP. 

  • After adjusting for the additional one-off cost and lower project wins, our DCF-backed TP is lowered to SGD0.68. 
  • Management is currently lowering the cost structure of Symmetry Group to increase its margins, coupled with Merimen’s expansion into new markets and potential new contract wins, we maintain BUY on Silverlake. 
  • Key downside risks would be economic recession and slowdown in banks’ capex.

One-off cost a drag on profitability. 

  • 3Q16 profitability was largely dragged down by the one-off costs such as the consolidation cost of Symmetry Group as well as the transition cost from its Symmetry Group acquisition. However, we do not expect such costs to continue going forward.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-05-13
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.68 Down 0.75