Silverlake Axis - Phillip Securities 2022-11-16: Project-Related Revenue Surges

SILVERLAKE AXIS LTD (SGX:5CP)

Silverlake Axis - Project-Related Revenue Surges

Silverlake Axis (SGX:5CP)'s 1Q23 earnings of RM57.6mil were in line with our estimates, at 28% of our FY23e. The 64% y-o-y surge in earnings came from higher software licensing and software and hardware sales offset by lower software project services.
Project-related revenue comprising software licensing and software project services increased 107% 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.

We maintain BUY recommendation on Silverlake Axis with an unchanged target price of S$0.49. Our FY23e estimates remain unchanged. Our FY23e estimates remain unchanged. Our target price is pegged to 20x P/E FY23e. We expect MOBIUS and the recovery in bank IT spending after two cautious pandemic years to be the key growth drivers for the company.

Software licensing revenue spiked more than 6-fold y-o-y to RM39mil. It was largely contributed to by the delivery of new software licensing contracts and banking deals secured in Indonesia and Thailand. However, this was offset by software project services revenue decreasing 31% y-o-y to RM14mil.
A key new implementation project secured in Thailand has just commenced, and the revenue will be recognised progressively in the subsequent periods. There are also a few new project services which are at the final stage of contracting.

Silverlake Axis has a long track record and a proven client base in Southeast Asia. Three of the 5 largest Southeast Asia-based financial institutions uses 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 RM 2.1bn (4Q22: RM1.9bn), with a healthy order backlog of RM400mil-450mil. Silverlake Axis is beginning to close more deals and is witnessing an uptick in inquiries about its financial services market solutions and capabilities.

Maintenance and enhancement services fell 8% y-o-y to RM109mil as maintenance revenue was stable, while enhancement services revenue fell due to delays in work order signoffs or acceptance by the customers missed revenue recognition in 1Q23. Nonetheless, this was offset by insurance ecosystem transactions and services revenue increasing by 74% y-o-y as vehicle claims processing activities recovered, as well as increased revenue from new operations in Japan and UAE.
Revenue from retail transactions processing also increased 229% y-o-y mainly due to higher subscriptions by pharmaceutical and retail customers in Malaysia and Singapore.

Launched in 2020, Silverlake Axis’s MOBIUS cloud banking software allows banks to roll out 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%/65% of FY22/1Q23 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 Axis’s customers to increase their IT spending to accelerate their digitalization plans to grow.

We maintain a BUY rating on Silverlake Axis with an unchanged target price of S$0.49.
Our FY23e estimates remain unchanged. Our target price is pegged to 20x P/E FY23e. It is at 80% of peer valuations of around 25x P/E.
Our target P/E of 20x is 12% higher than the historical average P/E of 17.9x. 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.
See

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-11-16

SGX Stock Analyst Report BUY MAINTAIN BUY 0.490 SAME 0.490