Excerpts from RHB report

Analysts: Jarick Seet & Lee Cai Ling



Silverlake Axis: Key Takeaways From KL NDR

Maintain BUY and SGD0.57 TP, with 27% upside. We brought Silverlake on a full-day NDR with institutional investors in KL.

Silverlake

Share price:
45 c

Target: 
57 c

Key takeaways are management remaining bullish, as it believes this is the start of banks’ capex spending cycle.

It would also be backed by strong MYR350m orderbook – of which MR200m should be realised in FY19F compared to MYR80m in FY18 under the licensing and project services revenue streams with average gross margins of about 60%.

We expect revenue from both streams to surge YoY, and 63.6% PATMI for FY19.


MYR350m orderbook to boost licensing and services revenue in FY19F (Jun). Management guided for more than half of existing orderbook to be realised in FY19F, mainly from two revenue streams – licensing (80-90% gross margins) and project services (20-30% gross margins).

gohpengooi 11.17Silverlake chairman Goh Peng Ooi.
Youtube screenshot
The two revenue streams slumped significantly in FY17 and FY18F, but we expect them to surge in FY19-20.

Due to the rise in licensing revenue with 90% gross margins, we expect overall profitability and margins to increase as well.

Early banking spending capex cycle. Banks in South-East Asia were generally cutting capex in the last few years, which resulted in Silverlake Axis’ orderbook falling as well.

Management is encouraged by the latest signs shown by customers, which raised orderbook to MYR350m, after a few major contract wins.

JarickSeet3.18"It (Silverlake)  also still has a remaining stake in its Chinese-listed associate and may proceed with divestment plans. We view that management will highly reward shareholders with special dividends from proceeds of this divestment."

-- Jarick Seet (photo) &
Lee Cai Ling,

RHB Research 

It is also noted that this may be the start of banks’ capex spending cycle, which typically lasts 3-4 years with many banks in South-East Asia – especially Malaysia, Indonesia and Thailand – needing to upgrade core banking systems.

We have also conducted channel checks with banking analysts, who concurred that banks in South-East Asia have begun to invest more on technology, especially on the digital banking and fintech front.

Attractive dividends to continue. Management guided that it would continue to reward shareholders with high PATMI payout ratio.

Historically, it has always paid >80% and this trend should continue. As a result, investors should benefit from an increased dividend yield, if profitability surges in FY19F.

Start of the upcycle – maintain BUY. We believe there are bumper years of PATMI growth ahead – justified by Silverlake’s strong orderbook of >MYR350m (not seen since FY15-16). As we see it, the business cycle has bottomed, and earnings should surge over the next few years.

Positive signs from licensing and project services revenue streams in 3QFY18 also point towards a strong outlook. Key risk is the delay in or implementation of orders. 


RHB is one of two brokers covering Silverlake.
Full report here


Share Prices

Counter NameLastChange
AEM Holdings4.040-0.010
Avarga0.305-
Avi-Tech Electronics0.405-
BH Global0.295-
China Sunsine0.495-
Food Empire0.8550.005
Fortress Minerals0.635-0.005
Golden Energy0.380-0.005
GSS Energy0.0670.001
InnoTek0.880-0.005
ISDN Holdings0.725-
ISOTeam0.134-
IX Biopharma0.2350.005
KSH Holdings0.370-
Leader Env0.0770.003
Medtecs Intl0.805-0.005
Moya Asia0.0680.001
Nordic Group0.315-
Oxley Holdings0.2300.010
Procurri0.330-
REX International0.2100.005
Riverstone1.270-0.010
Roxy-Pacific0.395-
Southern Alliance Mining1.0200.030
Sri Trang Agro1.560-
Straco Corp.0.530-
Sunpower Group0.6850.005
The Trendlines0.102-
UG Healthcare0.565-0.010
Uni-Asia Group0.9850.020
Wilmar Intl4.4900.030
Yangzijiang Shipbldg1.4000.020
Yinda Infocomm0.230-

NextInsight RSS

rss_2 NextInsight - Latest News

Online Now

We have 678 guests and one member online

  • Lionel Lim