Silverlake Axis Limited

PHILLIP SECURITIES RESEARCH, Aug 28

SILVERLAKE Axis Limited's (SAL) Q4,14 revenue gained 25 per cent y-o-y, from higher software licensing and maintenance and enhancement services. Full-year revenue increased 26 per cent y-o-y at RM500.7 million (S$198.08 million), above our estimate by 2.8 per cent.

Full-year gross margin was lower y-o-y at 61.3 per cent, due to lower margins from certain projects and drag downs in first and third fiscal quarters.

Quarterly and full-year net profits were higher at 24 per cent y-o-y and 27 per cent y-o-y, respectively. FY14 earnings was at RM248.9 million, above our estimate by 3.7 per cent. Final dividends of 1.2 Singapore cents per share were declared, along with special dividends of 0.6 Singapore cents.

Growth in all segments apart from software project services contributed to strong FY14 revenue gain. The project services segment is guided to pick up on execution of software implementation projects secured for fiscal year 2015. Management also guided for revenue to grow at mid-teens.

The enhancement services segment is set to grow with more enhancement projects expected to come from Malaysia on software upgrades to be GST-compliant, following the Malaysian government's announcement to introduce goods and services tax (GST) from April 2015.

The insurance processing business is also expected to have strong growth, mainly from increase in general insurance and health claims processing activities in Indonesia.

Current project backlog gained to about RM280 million. Special dividends were declared to reward shareholders as a result of strong FY14 performance and high net cash balance.

We remained positive on SAL on the back of favourable trends towards upgrading and modernising of core banking systems and regionalisation of banks in Asean. SAL would benefit from additional recurring maintenance revenue and future enhancement services with every successfully completed software implementation project.

We also see SAL gaining from post-merger integration projects coming from OCBC-Wing Hang merger and possibly, merger between CIMB, RHB and MBSB.

We continue to like Silverlake Axis for its excellent growth potential, solid balance sheet and growing recurring revenue streams. We revised our FY15 forecasts to reflect management's guidance and maintained our "Accumulate" rating with a target price of S$1.320 (implied FY15 forecast PE of 27.0 times)

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