Silverlake Axis - CGS-CIMB Research 2020-11-13: Stay Optimistic Beyond The 1Q Blip


Silverlake Axis - Stay Optimistic Beyond The 1Q Blip

  • Silverlake Axis's 1QFY21 core net profit of RM33m (+48% q-o-q, -30% y-o-y) below expectations due to temporary disruptions arising from a cybersecurity incident.
  • Order win momentum improved in 1Q. Silverlake Axis is actively engaging customers to provide them with an upgrade roadmap for its next gen CBS – Mobius.
  • Silverlake Axis remains on track for an earnings recovery in FY21. Reiterate ADD with a slightly lower target price of S$0.38 (16.3x CY21F P/E).

Silverlake Axis's 1QFY21 results below expectations

  • Silverlake Axis (SGX:5CP)'s 1QFY21 (Jul to Sep 2020) core net profit of RM33m (+48% q-o-q, -30% y-o-y) was below expectations, coming in at 17%/18% of our/Bloomberg consensus FY21F forecasts. The key surprise was weaker-than-expected topline (-5.5% q-o-q, -9.8% y-o-y), which management attributed to temporary disruptions arising from a cybersecurity incident in Sep. See Silverlake Axis' announcements.
  • Margins were pressured due to
    1. unfavourable revenue mix resulting in lower GPM, and
    2. higher effective tax rate due to loss of pioneer status by a Malaysian subsidiary.

Improving order win momentum

  • 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 incremental enhancement.
  • Order wins picked up in 1QFY21, with Silverlake Axis clinching c.RM80m worth of new orders (FY20: c.RM220m), and management remains confident of securing more in the coming quarters.
  • Silverlake Axis also notes that the level of engagement for its new cloud-based core banking system (CBS), Mobius, has picked up further. Mobius can be made available as a software-as-a-service offering, and the minimal capital outlay by banks could lower the barrier to adoption. We view customers’ upgrade roadmap to Mobius as a potential medium-term driver for Silverlake Axis, but have yet to factor this into our model.

Expecting a better recovery in 2Q

  • Silverlake Axis’s orderbook stands at c.RM350m as at end-Sep. With strong order backlog and easing lockdown measures, we expect Silverlake Axis’s project-related revenue to stage a rebound in coming quarters.
  • Recurring revenue segments should also resume growth at high single-digits on a y-o-y basis with operations back to normal in 2Q. We remain confident that Silverlake Axis can achieve topline/core net profit growth of 5.3%/21.2% y-o-y in FY21F.

Reiterate ADD with a lower target price of S$0.38

ONG Khang Chuen CFA CGS-CIMB Research | 2020-11-13
SGX Stock Analyst Report ADD MAINTAIN ADD 0.38 DOWN 0.390