Silverlake Axis - RHB Invest 2019-02-15: Strong Quarter, Expecting Better Growth Ahead


Silverlake Axis - Strong Quarter, Expecting Better Growth Ahead

Maintain BUY and DCF-backed target price of SGD0.65, 26% upside.

Roadblock for more upside cleared.

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

Higher dividend payout in 2HFY19 (Jun).

  • Management said it is keen on rewarding shareholders with better dividends. We believe Silverlake will likely conduct more share buybacks, similar to 2018 – this should be positive for the company.
  • As at 2QFY19, it has declared a total of SGD0.007, which represents roughly 50% of its 1HFY19 PATMI. For 2HFY19, management guided that they would likely look to increase the payout ratio.
  • Historically, Silverlake has paid > 80% of their earnings. Due to the company’s share buybacks previously, we expect the payout ratio for 2HFY19 to be 60-70%, resulting in a projected FY19 yield of 4.6%

MYR280m orderbook with potential large size contract wins pending.

  • As at end-2QFY19, orderbook stood at MYR280, down from MYR325m. With banks budgeting for more IT investments, especially in Indonesia and Thailand, we understand management is actively in talks with a few potential new and existing customers.
  • Silverlake is also confident in securing additional large-sized contracts by end-2019 – this should further contribute towards its PATMI growth in FY20F-21F.

Maintain BUY.

  • With the improving fundamentals and strong earnings growth as of 1HFY19, Silverlake is on track for a healthy 2019.
  • We expect the strong earnings growth and margin improvement to continue into 3Q19F and 4Q19F as it continues to execute the large size Malaysian contract.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-02-15
SGX Stock Analyst Report BUY MAINTAIN BUY 0.650 SAME 0.650