Silverlake Axis - RHB Invest 2019-03-28: Solid In 2019; Keep BUY

SILVERLAKE AXIS LTD (SGX:5CP)

Silverlake Axis - Solid In 2019; Keep BUY

Keep BUY on this country pick, SGD0.65 Target Price offers 18% upside plus 4% FY19F yield.
SILVERLAKE AXIS LTD (SGX:5CP)’ 2QFY19 revenue/PATMI surged 28%/84% y-o-y, mainly on wider margins stemming from licensing revenue jumping 98% y-o-y as it continued to implement a major Malaysian contract. This outperformance should continue into the rest of 2HFY19, which may lead to stellar results again, in 3QFY19.
We expect 3QFY19 to be upbeat, on continued margin improvement and a positive PATMI uptrend.

Management is keen on rewarding shareholders with a higher dividend yield. In addition, we believe Silverlake will likely engage in more share buybacks, similar to what was done in 2018 – which is a positive.
As of 2QFY19, Silverlake declared total DPS of SGD0.007, or roughly 50% of 1H19 PATMI. For 2HFY19, management guided that it will likely look to increase the payout ratio.
Historically, Silverlake has forked over 80% of earnings as dividends. See Silverlake's dividends. Based on its previous share buyback exercises, we expect the dividend payout ratio to be c.70% for 2HFY19, resulting in a 4% FY19F yield.

As of end- 2QFY19, Silverlake’s orderbook stood at MYR280, down from MYR325m in 1QFY19.
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 of securing additional large-sized contracts by the end of 2019, especially from these countries – which should further contribute towards PATMI growth in FY20-21.

With the improving fundamentals and strong earnings growth as of 1H19, Silverlake is on track for a robust 2019. We expect the strong earnings growth and margin improvement to continue into 3Q19 and 4Q19, as it continues to execute the large-sized Malaysian contract. As such, we maintain BUY with an unchanged DCF-backed Target Price of SGD0.65.
Silverlake remains one of our top country picks for 2019. (See also report: Singapore Equity Strategy - Headwinds Persist; Stick With Quality!)
Key downside risks to our call are an economic recession and banks cutting their capex budgets.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-03-28

SGX Stock Analyst Report BUY MAINTAIN BUY 0.650 SAME 0.650