Silverlake Axis - RHB Invest 2019-01-31: Overhang Cleared, Positive 2Q19 Ahead; BUY


Silverlake Axis - Overhang Cleared, Positive 2Q19 Ahead; BUY

  • Keep BUY and DCF-backed SGD0.65 Target Price, 38% upside plus 5% FY19F yield.
  • With bumper years of PATMI growth ahead (justified by a strong orderbook of > MYR325m unseen since FY15-16) and potential large contracts still to come – coupled with a potentially positive 2Q19 and possible overhang clearance – we think SILVERLAKE AXIS LTD (SGX:5CP)’ v-shaped recovery is intact.

Overhang likely cleared.

  • On 29 Jan, a block of > 39m-plus shares were crossed (see Silverlake Axis’ share price and trading volume).
  • Via our channel checks, we understand this block was potentially from a former substantial shareholder who – over the past months – has been selling in the open market. This has partially caused the share price to be muted and depressed.
  • With this overhang gone, we are optimistic that share prices will start to re-rate, reflecting Silverlake Axis’ true value.

Positive 2Q19 ahead.

  • Silverlake Axis posted a stellar 1Q19, with revenue and PATMI surging 36% and 70% y-o-y.
  • Going forward, management aims to utilise at least MYR200m worth of orders for FY19, which will likely result in a projected 64% y-o-y PATMI surge for this period. Margins improvement will also likely continue on higher contributions from lucrative licensing revenues.
  • Consequently, we do expect a positive 2Q19 ahead, as Silverlake Axis continues to execute on core banking projects secured last year.
  • With improving fundamentals and earnings, management said it is keen on rewarding shareholders with better dividends. In addition, we believe Silverlake Axis will likely do more share buybacks, similar to was done in 2018 – this should be positive for the company.

MYR320m orderbook with potential large size contract wins pending.

  • Despite drawing down MYR55m of its orderbook in 1Q19, Silverlake Axis has secured c.MYR25-30m worth of contracts on the digital banking front. This brings its orderbook to MYR325m. With banks budgeting for more IT investments, we understand management is actively in talks with a few potential new and existing customers.
  • Silverlake Axis is also confident of securing additional large-sized contracts in 2H19 – this should further contribute towards its PATMI growth in FY20-21.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | 2019-01-31
SGX Stock Analyst Report BUY MAINTAIN BUY 0.650 SAME 0.650