Silverlake Axis - Phillip Securities 2022-09-01: Record Revenue Boosted By New Cloud Platform

SILVERLAKE AXIS LTD (SGX:5CP)

Silverlake Axis - Record Revenue Boosted By New Cloud Platform

Silverlake Axis (SGX:5CP)'s FY22 (1 Jul 2021 to 30 Jun 2022) earnings of RM182mil was above our estimates, at 114% of our FY22e. Variance came from higher-than-expected software licensing and software project services revenue due to two new MOBIUS contracts signed during the year. Silverlake Axis's FY22 dividend was 35% higher y-o-y at S$0.007 per share.

Project related revenue comprising software licensing and software project services increased by 66% y-o-y due to the delivery of new software licensing deals in Indonesia and Thailand, and the ongoing implementation of two new MOBIUS contracts.
Silverlake Axis's recurring revenue comprising maintenance and enhancement services, insurance ecosystem transactions and services, and retail transactions processing increased by 6% y-o-y and contributed > 70% of total revenue.
We maintain BUY recommendation on Silverlake Axis with a higher target price of S$0.49 (previously S$0.38). We raised our FY23e PATMI forecast for Silverlake Axis by 18% to RM209mil. The target price is pegged to 20x P/E FY23e. We expect MOBIUS and the recovery in bank IT spending after two cautious pandemic years as key growth drivers for the company.

Silverlake Axis's software licensing revenue increased by 110% y-o-y to RM84mil largely contributed by the delivery of new software licensing contracts and banking deals secured in Indonesia and Thailand.
Software project services revenue increased 39% y-o-y to RM91mil mainly due to the ongoing implementation of two new MOBIUS contracts, which accounted for 37% of total project services revenue. Progressive revenue came from other ongoing projects.

Maintenance revenue grew 8% y-o-y while enhancement services revenue grew 2% y-o-y. The increase was from the commencement of new maintenance contracts upon completion and cutover of several key implementation projects as well as new enhancement contracts secured from customers.
Insurance ecosystem transactions and services revenue also increased by 15% y-o-y as vehicle claims processing activities recovered. The addition of processing activities from new Hong Kong customers upon completion of system integration also contributed positively.

Silverlake Axis has a long track record and a proven client base in Southeast Asia. Three 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 RM1.9bn, with a record-high order backlog of RM570-600mil. Silverlake Axis is beginning to close more deals and is witnessing an uptick in inquiries about its financial services market solutions and capabilities.

Gross margin was lower in FY22, at 57% compared with 60% in FY21. This was mainly due to higher provisions taken for bonus pay-outs in FY23. Management also said that there was a higher percentage of hardware sales, which usually has a lower gross profit margin.

Launched in 2020, Silverlake Axis’s MOBIUS cloud banking software allows banks to roll over new digital products in a targeted and timely manner. MOBIUS also allows banks to use 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 more than 70% of FY22 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 can expect Silverlake’s customers to increase their IT spending to accelerate their digitalisation plans to grow.

We maintain a BUY rating on Silverlake Axis with a higher target price of S$0.49. We raised our FY23e PATMI forecast for Silverlake Axis by 18% to RM209mil. Our target price is pegged to 20x P/E FY23e. It is at 92% of peer valuations of around 22x P/E.
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Our target P/E of 20x is 13% higher than the historical average P/E of 17.7x. In our view, Silverlake Axis should trade at a higher premium to its historical P/E with the introduction of MOBIUS and the resumption of bank IT spending after the pandemic.

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-09-01

SGX Stock Analyst Report BUY MAINTAIN BUY 0.49 UP 0.380