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Silverlake Axis Ltd - CIMB Research 2016-08-26: FY16 in line

Silverlake Axis Ltd - CIMB Research 2016-08-26: FY16 in line SILVERLAKE AXIS LTD 5CP.SI

Silverlake Axis Ltd - FY16 in line

  • FY6/16 core net profit in line with our forecast at 103% of our full-year forecast.
  • FX impact contributed 9% to the yoy increase in FY16 revenue.
  • 1.0 Scts DPS declared for 4Q16, translating to 103% payout ratio.
  • Balance sheet in net cash position at end-FY16.
  • Maintain Add with higher target price of S$0.68 as we roll over our DCF valuation to FY17.


Results in line 

  • At 103% of our FY16 forecast, we deem core net profit of RM267m (+5% yoy) in line with our estimate and consensus due to better revenue mix. 
  • For FY16, software licensing sales fell 3% yoy but all other segments registered double-digit growth. Gross profit margin narrowed to 60% in FY16 vs. 65% in FY15 due to the change in revenue mix. Net profit was affected by the additional costs arising from the Symmetri acquisition.
  • A final DPS of 1 Scts was declared. On a full-year basis, the payout ratio was 87%.


Outlook 

  • Silverlake highlighted that financial institutions remain cautious on large IT expenditure, resulting in weaker demand for major core IT replacement or upgrades. Management expects the earliest that stronger spending in IT capex at banks may return could be in FY18. 
  • Pending that, Silverlake is strengthening its capabilities in MES as well as expanding the market share of its previous acquisitions, Cyber Village, Merimen and Symmetri group.


Short-term share price catalysts 

  • In 1HFY17, short-term catalysts include 
    1. possible order wins in Malaysia and Thailand (bidding is in progress), 
    2. small acquisitions to expand Merimen’s insurance processing business into China, and 
    3. special dividend possibility when 1Q17 results are announced. 
  • Silverlake sold 1m Global Infotech shares in Jun amounting to 1.46 sen per Silverlake share. Our FY17 DPS forecast of 9.87 sen excludes any special dividend.
  • Silverlake intends to dispose of another 7m GIT shares in FY17.


Interested party transaction 

  • For FY16, interested party transactions with Silverlake Entities amounted to 15.9% of revenue on a gross basis and 5.2% on a net basis. 
  • In terms of ageing for amounts owing from related parties, 96% were within 0-30 days. Silverlake is targeting to eliminate interested party transactions by FY18 as the company is growing its own capabilities and utilising the resources from its Symmetri acquisition. 


Maintain Add 

  • We introduce FY19 forecasts. Our DCF-based target price rises to S$0.68 (WACC: 11.6%) as we roll-over to FY17. 
  • FY17-18 EPS forecast changes reflect changes in revenue mix and better clarity on cost structure with the completion of the Symmetri acquisition. 
  • Potential re-rating catalysts include significant order win announcements, elimination of interested party transactions and special dividends. 
  • Key risk is pullback in customers’ rollout schedules.




William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-08-26
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.68 Same 0.600


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