Friday 4 July 2014

Silverlake Axis

UOBKayhian on 4 Jul 2014

FY14F PE (x): 27.8
FY15F PE (x): 23.5
Stricter regulations, regional expansion and digitisation keep orderbook backlog at RM250m as at end-Mar 14, which would be recognised over the next 12-18 months. While negotiations for new contract wins remain ongoing, existing customers continue to supply new projects to the group. Stricter regulations have led to enhancement and upgrading services. Banks have been extending the scope of work required from SAL as they expand their market coverage and engage in M&As. Increasing pressure to ride the trend in digital solutions has led to many customers actively seeking ebusiness applications. In 3QFY14, the group secured RM60m worth of new contracts from existing customers and mitigated the delay in major contract wins.

Downgrade to HOLD but maintain target price at S$1.20, based on our DCF model. Our target price implies 24.8x FY15F PE, slightly above its historical PE band of 1.2- 24.1x. Peers are trading at an average forward PE of 18x but offer lower ROE of 21% vs SAL’s 41%. We continue to like the group’s business model and outlook and would look to accumulate closer to S$1.05.

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