Silverlake Axis - CGS-CIMB Research 2020-08-27: Looking Forward To A Better FY21


Silverlake Axis - Looking Forward To A Better FY21

  • Silverlake Axis's FY20 (Jul 2019 to Jun 2020) core net profit of RM143m (-32% y-o-y) was below expectations at 85% of our forecast. FY20 dividend payout ratio lowered to 40% (FY19: 60%).
  • Despite cautious business environment, Silverlake Axis was able to grow its orderbook with smaller enhancement projects. Deal pipeline also remains healthy.
  • Upgrade Silverlake Axis to ADD, as we believe the worst is over, and see earnings recovery in FY21F. See Silverlake Axis Target Price.

Silverlake Axis's 4QFY20: Weak set of results

  • Silverlake Axis (SGX:5CP)'s 4QFY20 (April 2020 to June 2020) core net profit of RM22m (-61% y-o-y) was below expectations, mainly due to weaker contribution from project-related revenue segments. FY20 core net profit made up 85%/89% of our/Bloomberg consensus forecasts.
  • Silverlake Axis's 4Q20 topline declined 17% y-o-y due to lower progress billing on project implementations; partially offset by recurring revenue (69% of FY20 revenue) which expanded 8% y-o-y. See Silverlake Axis Announcements. Margins were compressed due to
    1. unfavourable revenue mix resulting in lower gross profit margin, and
    2. higher effective tax rate due to loss of pioneer status by a Malaysian subsidiary.
  • Silverlake Axis announced final DPS of 0.3 Scts, bringing FY20 dividend payout ratio down to 40% (FY19: 60%).

Expecting a better FY21

  • While large core banking deals continue to be a challenge to close due to the cautious business environment, management noted that its banking clients continue to spend on smaller enhancement projects. Silverlake Axis’s orderbook grew to c.RM390m as at end-Jun (end- Mar 2020: c.S$320m).
  • With strong order backlog and lockdown measures easing globally, we expect Silverlake Axis’s project-related revenue to stage a strong rebound in FY21F (+22.5% y-o-y). Recurring revenue segments should also continue to grow at a stable pace; we forecast Silverlake Axis to achieve topline growth of 9.2% y-o-y in FY21F.

Cloud-based CBS a potential medium-term growth driver

  • In Aug, Silverlake Axis launched its digital suite Mobius, a cloud-ready core banking system (CBS) which can be made available as a software-as-a-service (SaaS) offering. Active enquiries for this initiative bolstered Silverlake Axis’s potential order pipeline to c.RM1.6bn currently (end-Mar: RM1.2bn).
  • We believe the SaaS model can help minimise capital outlay required for banks, thus lowering barriers to adoption. We have yet to factor this potential into our model.

Upgrade Silverlake Axis to ADD

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-27
SGX Stock Analyst Report ADD UPGRADE HOLD 0.39 UP 0.260