Silverlake Axis Ltd - CGS-CIMB Research 2019-05-15: Results Losing Some Shine


Silverlake Axis Ltd - Results Losing Some Shine

  • SILVERLAKE AXIS LTD (SGX:5CP)'s 3QFY6/19 results were below expectations, with core net profit meeting 65% of our and 69% of Bloomberg consensus full-year forecasts.
  • Actively pursuing over RM500m of contracts that could boost its order backlog (RM250m as at end-Mar).
  • Maintain ADD with a lower Target Price of S$0.58, to reflect slower earnings growth.

3QFY19 net profit lifted by exceptional gains, revenue growth

  • SILVERLAKE AXIS LTD (SGX:5CP) reported 3QFY6/19 net profit of RM53m (+81.7% y-o-y), on the back of 21.6% y-o-y topline growth that is attributable to stronger project-related revenue.
  • The surge in net profit was due to a one-off gain of RM18.2m from the reversal of value-added tax accrued for the disposal of GIT shares in FY17-18. Excluding one-off, Silverlake's 9MFY19 core net profit accounted for 65% of our and 69% of Bloomberg consensus FY19 forecasts.

Strong project-related earnings could sustain for another 6 months

  • The robust 3QFY19 revenue growth was due to the progressive delivery of two big core banking projects in Malaysia as well as new retail automation jobs secured. Management guided for strong project-related revenue (from both licensing and software services) to continue for at least another six months.
  • The revenue stream could, however, start to slow down in the absence of major order wins, in our view. Order backlog as at end-Mar was RM250m, down from RM380m as at end-3QFY18.

Pursuing c.RM500m of jobs; benefits from rise of digital banking

  • Silverlake is actively pursuing over RM500m worth of contracts which comprise both digital and core banking projects, mainly in Indonesia, Thailand and Vietnam. Management anticipates Indonesian banks to ramp-up their digital banking activities in the next 3-6 months, potentially leading to project awards for Silverlake.
  • New digital banks are also potential targets for new projects; we gather that Silverlake has been approached for possible software solutions to support the new digital banking operations.

Reserving more cash for acquisitions; expect lower dividend yield

  • Silverlake declared an interim DPS of 0.4 Scts, bringing 9MFY19 DPS payout to slightly under 50%, below typical historical range of 63-110%. See Silverlake Axis dividend history.
  • 4QFY19F could see a more generous DPS payout, but management has indicated it would conserve cash to support acquisitions. We thus lower our DPS forecasts, which now imply 3.6-4.2% dividend yield in FY19-21F.

Maintain ADD with lower Target Price of S$0.58.

  • We cut our FY19-21F EPS by 7.2-13.0% to reflect slower earnings growth in the absence of large-sized project wins recently.
  • Our SOP-derived Target Price dips to S$0.58, implying 20.5x CY20F P/E, in line with global peer average.
  • Potential Silverlake's share price catalysts include more major core banking contract wins.
  • Deferred tech spending by banks in ASEAN is a key downside risk to our call.

Colin TAN CGS-CIMB Research | 2019-05-15
SGX Stock Analyst Report ADD MAINTAIN ADD 0.58 DOWN 0.620