Silverlake Axis - RHB Invest 2016-06-03: Significantly Undervalued Software Gem

SILVERLAKE AXIS LTD 5CP.SI

Silverlake Axis - Significantly Undervalued Software Gem

The moratorium period relating to Silverlake’s 20% stake in GIT has expired.
Being one of the substantial shareholders of GIT, it had advised the former that it may sell up to 8m of its shares within the 6-month period starting from 24 Jun 2016. As a result, we expect about SGD110m to be raised from these share sales, translating to c.4.2 SGD cents special dividend per share to shareholders.
Coupled with FY16F dividends from operations, its FY16F dividend yield can potentially go up to 12.6%.

Silverlake Axis (Silverlake) owns a 20% stake in Global Infotech (GIT), listed on the Shenzhen ChiNext Exchange worth approximately SGD400m. The moratorium period expired on 1 Jun 2016.
Being one of the substantial shareholders of GIT, it had advised the former that it may sell up to 8m of its GIT shares within the 6-month period starting from 24 Jun 2016.
At current market price, the 8m share sales could potentially represent a one-off investment gain of SGD110m.

Previously, we mentioned that any potential share sale could potentially turn into special dividends to reward shareholders.
Furthermore, Silverlake is in net cash and does not need any cash from these sales to run its normal business operations with the exception of M&As, which are highly unlikely.
As a result, we expect about SGD110m to be raised from sales of its 8m GIT shares, translating to about 4.2 cents special dividend per share to shareholders.
Coupled with its FY16F dividend from operations, total dividend for FY16F could potentially translate to about 12.6% dividend yield for FY16F.

We remain optimistic on Silverlake, as it is also in talks with several Malaysian banks on the possibility of implementing its software to replace the banks’ existing core banking systems. Each contract is expected to be worth MYR150m-200m and the chances of Silverlake securing one by the end of this year is quite high, in our view.

Trading at just 12.7x FY16F P/E, Silverlake is significantly undervalued for a software company that handles core banking systems for a number of prominent ASEAN banks.
The company, which has a solid balance sheet with a net cash position, also pays quarterly annualised dividends of about 5%.
Given its current low valuations, coupled with potential catalysts like its special dividends and new contract wins, we think that the current share price weakness represents a good buying opportunity.
Maintain BUY on Silverlake with an unchanged DCF-backed SGD0.68 TP.
Key risks to our call include:
1. An economic slow down;
2. Its share sale failing to go through.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-06-03

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.68 Same 0.68