Silverlake Axis - RHB Invest 2018-08-28: PATMI Boost In FY19-20F

Silverlake Axis - RHB Securities Research 2018-08-28: Patmi Boost In Fy19-20f SILVERLAKE AXIS LTD SGX:5CP

Silverlake Axis - PATMI Boost In FY19-20F

  • Maintain BUY, new DCF-based Target Price of SGD0.57 from SGD0.65, 24% upside.
  • We cut FY19-20F earnings by 7% on higher administrative costs. 
  • Silverlake Axis reported decent 4Q18 numbers, with recurring PATMI up 3% y-o-y, ie in line with our estimate. However, earnings should grow strongly in FY19-20 – with FY18 marking the bottom of its earnings cycle – as it has managed to clinch new key banking projects that significantly boosted its orderbook to > MYR350m.
  • With more projects ahead, we are positive on its outlook.

Silverlake Axis’ orderbook is still at a healthy MYR380m.

  • The orders are scheduled to be realised in FY19-20 (of which at least MYR200m will be recognised in FY19). Orderbook levels like this have not been seen since FY15- 16 – which is a positive sign towards profitability going forward.

~ SGinvestors.io ~ Where SG investors share

Project services and licensing revenue bottomed out.

  • In 4QFY18, Silverlake’s licensing revenue surged y-o-y by 65%, mainly due to the projects it secured in the past few months. We think that this is the start of a lucrative revenue stream, which has recovered from a drought as banks held back spending due to the change in core banking systems. We think that this trend has since reversed positively, as Silverlake has managed to score quite a few sizeable contracts in the last few months. This could likely result in both revenue streams continuing to surge, especially in FY19-20.
  • With lucrative gross margins of 90% for its licensing business, it will be expected to contribute significantly to PATMI growth as well.

Attractive dividend yield 5.3% in FY19F.

  • As Silverlake has a healthy net cash balance sheet and positive operating cash flow, it tends to pay out more than 80% of PATMI in dividends. This should result in attractive projected dividend yields of 5.63% in FY18, and 5.98 % in FY19.

More large order wins likely.

  • Management also shared that it is seeing banks becoming more willing to spend more again to overhaul and upgrade their core banking systems, especially in South-East Asia.
  • We understand that the company is still actively in talks with a few potential new and existing customers, especially in Indonesia and is confident of securing more large- sized contracts which should further contribute more to iPATMI growth.

Into an upcycle; maintain BUY.

  • With bumper years of PATMI growth ahead, justified by its strong orderbook of over MYR350m not seen since FY15-16, we believe that Silverlake’s business cycle has bottomed out, and earnings may likely surge in the next few years. However, we pare down FY19F-20F PATMI by 7% respectively to account for higher administrative expenses, which reduces our DCF-backed Target Price to SGD0.57 from SGD0.65.
  • A key risk to our call is the delay in orders or implementation of orders.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-08-28
SGX Stock Analyst Report BUY Maintain BUY 0.57 Down 0.650