SILVERLAKE AXIS LTD (SGX:5CP)
Silverlake Axis - Outlook Dims On Headwinds; Stay NEUTRAL
- Maintain NEUTRAL, new DCF-based Target Price of SGD0.24 from SGD0.26, 4% downside with c.3% FY20F (Jun) yield.
- Silverlake Axis (SGX:5CP) reported a weaker 3QFY20, below our estimate. It also guided for a weaker 4Q20, due to the Movement Control Order (MCO) in Malaysia. Large deals continue to be a challenge to close, with many delayed by MCO measures or economic uncertainties. As a result, we cut FY20F and FY21F EPS by 6% and 10%, to reflect lesser licensing and project service revenue.
Lower licensing and project services revenue.
- Silverlake Axis's project-related revenue comprising software licensing and software project services declined 30% to MYR28.2m in 3QFY20, mainly due to the completion of a Thai core banking transformation project in 4Q19 as well as lower progressive revenue recognised from a few major contracts secured in Malaysia and Thailand that are nearing completion.
Dividends likely reduced.
- Management guided that, with a bleaker outlook, Silverlake Axis will likely conserve more cash and decrease dividends ahead. As a result, we expect a 40-50% payout ratio for FY20F which results in a 2.7% yield for FY20F.
The COVID-19 pandemic has greatly impacted the global economy, as well as financial markets.
- Global air travel has ground to a halt, and cities are under lockdowns. Due to these circumstances, we believe banks will likely pare down costs and raise provisions for defaulting loans. As a result, they will also hold back on major IT spending, and slash IT capex budgets.
- We think Silverlake Axis will likely face more resistance in securing new projects from the banks or financial institutions.
Murky outlook ahead.
- As expected, PATMI will be likely hammered by a higher effective tax rate and steeper costs, on top of potential cuts in banks’ capex spending. Large contract wins from Indonesia and Thailand will likely be the next catalysts for the stock – in terms of earnings, as well as a share price re-rating. On this, management has faced some headwinds, due to COVID-19.
- We remain NEUTRAL on Silverlake Axis, as we expect weaker earnings ahead. We also downgrade our FY20F and FY21F PATMI by 6% and 10%, resulting in a lower DCF-based Target Price of SGD0.24.
- See Silverlake Axis Share Price; Silverlake Axis Target Price; Silverlake Axis Analyst Reports; Silverlake Axis Dividend History; Silverlake Axis Announcements; Silverlake Axis Latest News.
- Key downside risks are an economic recession, and banks cutting their IT budget. A reverse situations would present upside risks.
Jarick Seet
RHB Securities Research
|
Lee Cai Ling
RHB Invest
|
https://www.rhbinvest.com.sg/
2020-05-20
SGX Stock
Analyst Report
0.24
DOWN
0.260
