Silverlake Axis - CGS-CIMB Research 2021-05-12: Gradual Recovery Taking Shape

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SILVERLAKE AXIS LTD (SGX:5CP)

Silverlake Axis - Gradual Recovery Taking Shape

• Silverlake Axis's 3QFY21 net profit of RM38.7m (+12% q-o-q, +52% y-o-y) below expectations due to slower-than-expected recovery in project-related revenue.
• Order win momentum remains positive and should support sequential earnings recovery in upcoming quarters.
• Maintain ADD with a lower target price of S$0.31, still based on 14.2x CY22F P/E.

Silverlake Axis's 3QFY21 below expectations

• Silverlake Axis (SGX:5CP)'s 3QFY21 (Jan 2021 to Mar 2021) core net profit of RM38.7m (+12% q-o-q, +52% y-o-y) was below expectations; 9M core net profit made up 64%/66% of our/Bloomberg consensus FY21F forecasts.
• Topline remained weak (-12% q-o-q, -7% y-o-y) as project-related revenue saw continued weakness. This was mitigated by higher GPM (+6.4% points y-o-y) due to changes in sales mix and lower opex as a result of cost rationalisation activities implemented.

Positive updates on order wins

• Order win momentum remains positive; Silverlake Axis shared that it has secured RM74m worth of deals in 3Q, bringing year-to-date wins to RM225m (FY20: RM220m).
• Product strategy has demonstrated some early success, with the booking of first DPS Digital upgrade contract (Silverlake Axis has announced end-of-life for one of its existing products by end-2023, which opens up order opportunities of RM100m-150m).
• Mobius, Silverlake Axis’s new cloud-based core banking system (CBS), has seen active enquiries, and contracting is under way for its first order win from a tier-one bank in the region.
• Silverlake Axis is also engaged with several digital banking prospects in Malaysia, which could open up potential for future order wins.

Reiterate ADD with lower target price of S$0.31

• While the pace of project implementation remains negatively impacted by the COVID-19 crisis, we expect a continued recovery in Silverlake Axis’s earnings in the coming quarter, riding on a stronger order backlog.
• Maintain ADD. We cut our Silverlake Axis's FY21-23F earnings per share forecasts by 5.7%- 9.1% as we factor in a slower pace of project completion. Our target price for Silverlake Axis is lowered to S$0.31, still pegged to 14.2x P/E (0.75 standard deviation below Silverlake Axis’s 10-year historical average).
• See
  • Silverlake Axis's Share Price,
  • Silverlake Axis's Target Price,
  • Silverlake Axis's Analyst Reports,
  • Silverlake Axis's Dividend History,
  • Silverlake Axis's Announcements,
  • Silverlake Axis's Latest News.
• Potential catalysts include major core banking contract wins.
• Deferred tech spending by banks in ASEAN is a key downside risk to our call.

ONG Khang Chuen CFA CGS-CIMB Research | Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-12

SGX Stock Analyst Report ADD MAINTAIN ADD 0.31 DOWN 0.320