Silverlake Axis - Phillip Securities 2022-06-06: New Cloud Driver & Recovery In Bank Spending

SILVERLAKE AXIS LTD (SGX:5CP)

Silverlake Axis - New Cloud Driver & Recovery In Bank Spending

New growth driver from MOBIUS cloud-based banking software. Banking customers can deploy MOBIUS to launch new digital loan and deposit products in a more rapid and targeted manner. Almost RM100mil of orders is expected.
Silverlake Axis’s recurring maintenance revenue contributed to 72% of FY21 revenue and managed to expand at a CAGR of 4% despite the pandemic.

Initiate coverage on Silverlake Axis (SGX:5CP) with a BUY rating and a target price of S$0.38. Our target price is pegged to 20x P/E FY22e. We expect MOBIUS and the recovery in bank IT spending after two cautious pandemic years as key growth drivers for the company. In March 2022, Silverlake Axis initiated an equal access offer at S$0.33 each.

Silverlake Axis provides customized software solutions and core banking systems. It provides digital economy software solutions and services to the banking, insurance, payment, retail and logistics industries. To date, it has been the banking solutions provider for 40% of the 20 largest banks in Southeast Asia.
As at Dec 2021, Silverlake Axis's balance sheet is in a net cash position of RM493mil (S$154mil).

Launched in 2020, Silverlake Axis’s MOBIUS cloud banking software allows banks to roll over new digital products in a targeted and timely manner. Banks can utilise the MOBIUS allows banks to co-exist with existing core banking software and propel them to new digital products.
Potential uses of MOBIUS include new digital products in credit cards, debit cards, personal loans and deposits. Cloud based software avoids the need for banks to purchase and manage hardware assets.
Silverlake Axis recently signed a deal with one of the largest banks in Thailand and is continuing to see increasing inquiries in the region. We expect MOBIUS to generate almost RM100mil of orders over the next two years.

Silverlake Axis’s recurring maintenance and enhancement revenue contributed to 72% of FY21 revenue and it grew at a CAGR of 4% despite the COVID-19 pandemic. Silverlake Axis’s core banking software (Silverlake Integrated Banking Solution or SIBS) and continuous maintenance and enhancement provide a steady stream of recurring business for the group. SIBS provides core accounting and compliance.
With the opening of borders and economies in ASEAN, we should expect Silverlake Axis’s customers to increase their IT spending to accelerate their digitalisation plans to grow.

Silverlake Axis has a long track record and a proven client base in Southeast Asia. 3 of the 5 largest Southeast Asian based financial institutions use its core banking platform, and it has largely retained all its clients since bringing them on board its platform.
Silverlake Axis’s project pipeline is healthy, at RM1.7bn, with a record-high order backlog of RM450mil, a 50% y-o-y increase. This should keep them busy for the next 1 to 2 years. Silverlake Axis is beginning to close more deals and is witnessing an uptick in inquiries about its financial services market solutions and capabilities.
Silverlake Axis should be able to secure its foothold in ASEAN and look to expand into other regions.

We initiate coverage on Silverlake Axis with a BUY rating and a target price of S$0.38. Our target price is pegged to 20x P/E FY22e. It is an 11% upside to peer valuations of around 18x P/E.
Our target P/E of 20x is 15% higher than the historical average P/E of 17.5x. In our view, Silverlake Axis should trade at a higher premium to its historical P/E with the introduction of MOBIUS and resumption of bank IT spending post pandemic.
Above is the excerpt from report by Phillip Securities Research. See the 10-page PDF report attached below for complete analysis on Silverlake Axis.
See also

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-06-06

SGX Stock Analyst Report BUY INITIATE BUY 0.38 SAME 0.38