- Reiterate BUY & DCF-based SGD1.40 TP.
- Temenos survey flags most bullish IT spending in recent years. Asian banks most optimistic. Core banking upgrades a top priority.
- Catalysts from further customer traction and earnings deliveries amid market turmoil.
A recent survey published by Temenos, a Switzerland-based banking-software vendor, augurs well for the industry. Participating banks are more bullish than ever on their IT spending in the coming year. Asian banks are the most optimistic, with 76% expecting bigger IT budgets. Core banking was highlighted as a top priority of all the categories of spending. This should benefit SAL.
Earnings resilience invaluable amid market turmoil
With a growing base of installed products across the region, we expect SAL’s recurring cash flow to rise 5ppts to 49% of its FY6/17E total. This should enhance the quality and resilience of its earnings and prove invaluable amid the market turmoil.
Furthermore, OCBC’s recently-completed acquisition of Wing Hang Bank should increase SAL’s workload in the coming quarters. We also believe the impending CIMB-RHB-MBSB merger in Malaysia will be positive for SAL. With CIMB and MBSB already customers, their merger should effectively bring RHB onto SAL’s platform. Together with the delivery of a MYR280m backlog, this should underpin a three-year 14% EBITDA CAGR to FY6/17E.
We see re-rating from solid multi-year earnings deliveries. Maintain BUY and DCF-based TP of SGD1.40 (WACC 9.3%, TG 3%).
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