Silverlake Axis - RHB Invest 2016-08-29: Resilient Business With Bright Prospects; Special Dividend Possibly On Horizon

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SILVERLAKE AXIS LTD 5CP.SI

Silverlake Axis - Resilient Business With Bright Prospects; Special Dividend Possibly On Horizon

• BUY, with a DCF-backed TP of SGD0.77 (from SGD0.68, 32% upside) with a potential special dividend in 1QFY17 (Jun). 
• We expect banks to cut down on large capex spending but continue to invest more on maintenance enhancement services (which Silverlake provides) like digital banking and Fintech in FY17. 
• We also expect its insurance arm to grow strongly, at +20% pa. 
• Despite the tough macro environment and several one-off acquisition costs incurred, FY16 earnings remained solid due to the strong growth from maintenance and enhancement services.

Resilient business despite a curb in bank spending. 

• Silverlake Axis’ (Silverlake) FY16 NPAT declined by 3.1% YoY from incurring one-off expenses from previous acquisitions. 
• Going forward, we expect its business to remain resilient, with strong growth continuing to stem from its credit card processing, insurance as well as the maintenance and enhancement segments.

Insurance segment continues to grow at +20% pa. 

• Management seems to be very bullish on its insurance business segment, which it expects to continue growing organically at 20% pa, in terms of topline, for the next few years. It is also exploring possibilities of potential M&A to help fast-track growth.

A likely special dividend in 1Q17. 

• Silverlake has sold 2m Global Infotech Co (GIT) shares and management has shared that it will likely sell more by 1Q17. With no excess use of the cash, a special dividend to reward shareholders seems very likely by 1Q17. 
• Key risks to our call include a continuous slowdown of the economy as well as the failure of its GIT stake sale.

Maintain BUY, with a higher TP of SGD0.77. 

• We continue to like Silverlake and expect its performance to remain resilient and deliver NPAT growth in FY17 – especially with the absence of one-off acquisition costs. 
• We also lift our DCF- backed TP to SGD0.77, implying 21x FY17F P/E. This, coupled with potential incoming special dividends, leads us to maintain our BUY call on the stock.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2016-08-29

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.77 Same 0.680