Silverlake Axis - RHB Invest 2019-09-06: Strong Quarter, Expecting Better Growth Ahead


Silverlake Axis - Strong Quarter, Expecting Better Growth Ahead

  • Maintain BUY with new DCF-backed Target Price of SGD0.56, from SGD0.65 23% upside plus c.7% yield.
  • SILVERLAKE AXIS (SGX:5CP), a sector Top Pick, saw revenue and PATMI rise 30% y-o-y and 86% y-o-y. This was due to margins improvement from higher licensing revenue, as it continued to implement the large sized Malaysian contract. This is further lifted by a MYR24.2m gain from fair value adjustments. However, we lower our FY20F-21F (Jun) PATMI on expected higher effective tax rate from its Malaysian subsidiaries.

Higher dividend payout in FY20F.

  • Management said it is keen on rewarding shareholders with better dividends. We believe Silverlake Axis will likely conduct more share buybacks, similar to 2019 – this should be positive for the company.
  • As at 2HFY19, it declared a total of 1.1 SG cents. For FY20F, management guided that it will likely look to increase the payout ratio. Historically, the company has paid > 80% of their earnings. See Silverlake Axis's dividend history.
  • Due to the share buybacks previously, we expect the payout ratio for FY20F to be 60-70%, resulting in FY20F yield of 6.5%.

MYR300m orderbook with potential large size contract wins pending.

  • As at end-FY19, orderbook stood at MYR300, up from MYR280m. 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 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 stronger earnings growth as at FY19, Silverlake Axis is on track for a decent FY20 but PATMI will be likely impacted by higher effective tax rates.
  • Large contract wins from Indonesia and Thailand should likely be the next catalysts for the stock.
  • Key Risks: Economic recession and slowdown in banks capex spending.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2019-09-06
SGX Stock Analyst Report BUY MAINTAIN BUY 0.56 DOWN 0.650