Silverlake Axis - Tech Upgrades Still In Favour
- Silverlake Axis (SGX:5CP) recorded net profit of RM57.6m in 1QFY23 (Jul to Sep 2022). This was 12%/4% above our/consensus’ estimates. The beat was largely due to lower-than-expected tax expense as a result of the bilateral tax relief claimed (relating to a licensing deal booked in Indonesia) and utilisation of written-down allowance of intellectual property rights. See Silverlake Axis's announcement dated 14 Nov 2022.
- Silverlake Axis’s 1QFY23 operating profit was in line with our forecasts as higher foreign currency exchange gains on its cash reserves (from the appreciation of foreign currencies against Ringgit Malaysia) offset its softer q-o-q revenue given timing mismatches between the completion of two Mobius contracts and the commencement of a new project secured in Thailand.
- Total opex now runs at a higher new normal level to account for increased spend in business development and hiring talent.
- Management remains positive on its FY23F business outlook.
- Silverlake Axis closed RM136m of contract wins in 1QFY23 (FY22: RM508m, FY21: RM326m). Its deal pipeline stood at RM2.1bn at end-1Q, with ~RM282m worth of these deals in categories that have a high probability of closure.
- In addition, Silverlake Axis’s secured backlog stood at ~RM450m – a level management deems comfortable, and places it on track to achieve its ~RM800m revenue target for FY23F.
- While Silverlake Axis’s gross profit margin held steady at ~59% in 1QFY23 (FY22: ~57%), we understand that margins from SIBS (Silverlake Axis’s core banking software – Silverlake Integrated Banking Solution) currently trend above Mobius given the former’s strong demand and mature stage of the product.
- Albeit smaller in size, other business lines such as insurance (~7% of 1QFY23 revenue) are also showing good momentum. Revenue from vehicle claims processing activities are recovering as businesses reopen while Fermion, Silverlake Axis’s insurtech offering, is growing at double-digit rates.
- We remain positive on Silverlake Axis’s growth outlook, and raise FY23-25F EPS by ~3-5% as we incorporate a stronger deal momentum. On the ground, recession risks are not of dire concern just yet as banks seek to upgrade their IT capabilities and offer new digital products.
- Reiterate ADD rating on Silverlake Axis with higher target price of S$0.44.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
Andrea CHOONG CGS-CIMB Research | https://www.cgs-cimb.com 2022-11-15 2022-11-15
Previous report by CGS-CIMB:
2022-08-30 Silverlake Axis - On Steady Momentum.