Silverlake Axis Ltd - CIMB Research 2017-05-17: Seeing More Requests For Proposals

Silverlake Axis Ltd - CIMB Research 2017-05-17: Seeing More Requests For Proposals SILVERLAKE AXIS LTD 5CP.SI

Silverlake Axis Ltd - Seeing More Requests For Proposals

  • 3QFY6/17 was below our expectations as core net profit slid into a loss of RM7m as revenue fell 21% yoy. 9M17 core net profit formed 13.1% of our FY17 forecast.
  • One-off gains amounted to RM406m in 3Q17 and RM780m in 9M17.
  • 0.70 Scts DPS was declared for 3Q17.
  • Balance sheet was in net cash position at end-3QFY17 (16% of market cap).
  • We cut FY17F core EPS forecast by 39.6% due to higher tax provisions for one-off gains.

MES was the star in 3QFY17 

  • 3QFY17 slipped into a loss of RM7m on a core net profit basis (excluding one-off gains) as revenue fell 21% yoy. 
  • In 3QFY17, maintenance and enhancement services (MES) revenue rose 25% yoy to account for 86% of total revenue. 
  • Insurance processing revenue increased 16% yoy, while other business segments registered double-digit decline. 
  • One-off gains of RM406m in 3Q17 consist of foreign exchange gains and gains related to the disposal of its shares in associate, GIT.

Acquisition of Mr Goh’s private entities 

  • According to management, Silverlake has appointed advisors and started the process of due diligence on its major shareholder Mr Goh’s private entities. The company aims to be able to decide on 
    1. which of these entities will be synergistic with Silverlake, 
    2. the structure of any possible deal, and 
    3. payment terms and valuation in the coming months. 
  • This acquisition will be put up for approval by the minority shareholders if Silverlake chooses to proceed.

Outlook for FY18F 

  • According to the company’s outlook statement, “the group continues to respond to more requests for proposals and is engaging existing and potential customers for core IT replacements and digital banking upgrades’. 
  • Silverlake also mentioned that it is reviewing opportunities for acquisitions to expand its portfolio of fintech and Insuretech software products and services to address a larger base of customers.

Maintain Add 

  • We cut FY17F EPS forecast by 39.6% due to higher tax provisions arising from Silverlake’s one-time gains. 
  • Our FY18F-19F EPS forecasts slip 0.3% due to a higher number of shares in issue arising from Silverlake’s Performance Share Plan. 
  • We keep our Add call with a DCF-based target price of S$0.65 (WACC: 11.4%). 
  • Potential rerating catalysts include significant order win announcements, elimination of related-party transactions and special dividends. 
  • Key risk is pullback in customers’ rollout schedules.

William TNG CFA CIMB Research | 2017-05-17
CIMB Research SGX Stock Analyst Report HOLD Maintain ADD 0.650 Same 0.650