Tuesday, 16 June 2015

Silverlake Axis

UOBKayhian on 12 Jun 2015

FY15F PE (x): 23.4
FY16F PE (x): 20.3

Why did the IPTs arise? As of FY14, revenue from new Interested Person Transactions (IPT) mandates and ancillary transactions of RM120.5m represented 24% of full-year revenue. Management guided that the IPTs arose due to the following: a) SILV’s chairman, Mr Goh Peng Ooi, has private entities which provide IT modules and services that SILV may not want to specialise in. For example, instead of buying and developing SILV’s capabilities to serve the stockbroking business, the group uses products and services from the private entities of Mr Goh, b) Mr Goh’s private entities are resellers of SILV’s software. An example would be the Middle East and North Africa (MENA) markets where SILV has no intention on building a marketing team to venture into. However, Mr Goh’s private entities would conduct business in those markets, and c) Mr Goh’s private entities purchase SILV’s software for long-term R&D related activities or for testing of new concepts where SILV might not be interested to be part of. Fundamentals remain intact. SILV’s business model remains unchanged, deriving more than 40% of revenue from its solid recurring segment (maintenance and enhancement services). As of 9MFY15, the group achieved operating margin of 66.6%, higher than peers’ average of 46.3%. Essentially, the group continues to generate cash and pays out consistent dividends. We estimate an operating cash flow of RM325m in FY16. Maintain BUY and DCF-based target price of S$1.66. SLV remains on our BUY list for its superior business model (with high recurring earnings) and strong cash flows. Looking from a longer-term perspective, we think SILV was oversold and this presents investors with a solid buying opportunity

No comments:

Post a Comment