Silverlake Axis - RHB Invest 2019-06-19: A Solid End To The Year; Keep BUY

SILVERLAKE AXIS LTD (SGX:5CP)

Silverlake Axis - A Solid End To The Year; Keep BUY

Maintain BUY on this 2019 sector and country Top Pick, unchanged DCF-backed Target Price of SGD0.65, 18% upside plus 4% FY19F (Jun) yield.
With improving fundamentals and strong earnings growth as of 9MFY19, SILVERLAKE AXIS LTD (SGX:5CP) is on track to record a robust FY19. We expect the sturdy growth in earnings and margins to continue into 4QFY19, as it continues to execute the major Malaysian core banking contract.

In 3QFY19, Silverlake Axis revenue and PATMI increased 12% and 77% y-o-y, mainly on margins expanding from licensing revenue growth (+98% y-o-y) as it continued to implement the Malaysian contract.
We expect this expansion to continue into 2HFY19, which will likely result in a similar growth for 4FYQ19. As such, Silverlake Axis should book a positive 4QFY19F performance, on continued margin and positive PATMI growth.

As of end-3Q19, its orderbook stood at MYR250, down from MYR280m in 2QFY18. 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 Axis 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.

Management said it is keen on rewarding shareholders with better share buybacks, similar to what was done in 2018 – which is a positive. As of 3QFY19, it increase the payout ratio further.
Historically, Silverlake Axis has paid over 8% of earnings as dividends. Due to previous share buybacks, we expect its dividend payout ratio for 2HFY19 to be -70%. See Silverlake Axis' dividend history.
Key risks are an economic recession, and banks cutting their capex.
Silverlake Axis is also one of the RHB's Top Singapore Small Cap Companies - 20 Jewels 2019 Edition.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-06-19

SGX Stock Analyst Report BUY MAINTAIN BUY 0.650 SAME 0.650