Silverlake Axis – Keeping the order win

Excerpts from CGSCIMB report

Silverlake Axis Ltd (SGX: 5CP)

• 1QFY6/24 net profit was in line with our estimates, but 7% above consensus. Revenue was below expectations, but this was largely offset by lower taxes.
• Deal closure momentum stayed robust at RM125m in 1QFY6/24.

Reiterate Add, with an unchanged TP of S$0.37. Elevated Fed rates should sustain further technology enhancements by banks, in our view.

1QFY6/24 in line with our expectations

Silverlake Axis (SILV) 1QFY6/24 core net profit was S$48.9m (+35% qoq, -15% yoy), in line with our estimates (26% of our FY24F forecast), but 7% above Bloomberg consensus’ (27% of FY24F forecasts). Although 1QFY24 revenue was below our expectations, this was made up for by lower taxes, as SILV recognised higher deferred tax assets to business transactions made during the quarter. On balance, 1QFY24 operating profit was 21% weaker yoy due to the absence of one large software licensing contract recognised in 1QFY23 and a higher opex run-rate (for FY24F) as SILV implements its contract wins clinched over the past year.

Robust order wins to fuel sequential revenue growth

SILV recorded c.RM125m worth of contract wins in 1QFY6/24 — a decent start to the year, in our view, compared to FY23’s RM635m. Its pipeline of deals came up to c.RM1.8bn in 1QFY24. With its secured order backlog and current pace of revenue recognition, given its progressive project implementation (from previous contract wins), SILV is fairly confident of FY24F revenue coming up close to the RM765m recorded in FY23. Deal closures from its robust pipeline should give SILV the boost towards exceeding its c.RM800m target in total revenues in FY24F, in our view.

Multi-product approach with on-premise and cloud-based solutions

Going forward, SILV would be focusing on its multi-product edge, which comprises both on-premise (SIBS and Symmetri) and cloud (Mobius) products, given the varied stages of market readiness for more advanced core banking solutions. To note, SILV closed a significant SIBS deal in Indonesia in 1QFY6/24 and is in the midst of implementing its (previously) signed Mobius deals in Thailand and Malaysia. We understand that most of its contracts closed in 1QFY24 were for enhancements to existing core banking systems ,which are expected to be completed within 12-18 months.

Valuation/Recommendation

Reiterate Add. TP unchanged at S$0.37 We tweak FY24-26F estimates by c.-0.6%-1% as we adjust SILV’s tax rates and pace of revenue recognition. We think that order wins and, hence, earnings growth would be fueled by banks upgrading their core banking systems. Our unchanged TP is pegged to 14x CY24F P/E, 1 s.d. below its 10-year mean to reflect continued unexpected one-off charges. Silverlake Axis share price chart You can find the full report here and the company website here.