Excerpts from CGS-CIMB report
Andrea Choong

Silverlake Axis Ltd
More digital upgrades to come

■ 2QFY6/23 core net profit of RM42m was 20%/18% below our/consensus’ forecasts, largely due to heftier forex losses on cash reserves and staff costs.


Share price:
37 c

44 c

■ Management is confident of reaching its RM800m FY23F revenue target as deal closure momentum (RM275m) and pipeline (RM1.8bn) remain robust.

■ Reiterate Add with a TP of S$0.44. We believe that strong yoy earnings growth across banks will support investments in technology, benefitting SILV.

2QFY6/23 below our estimates due to higher forex loss and opex

RM1.8 bn deal pipeline
Silverlake's deal pipeline is robust at RM1.8bn, with RM275m in the final stages of negotiation/undergoing contracting, according to management.

Silverlake Axis’ (SILV) 2QFY6/23 core net profit of RM42.1m (-27% qoq, -29% yoy) was 20%/18% below our/consensus’ estimates.

1HFY6/23 accounted for 46%/47% of our/consensus’ FY23F forecasts. Although 2QFY6/23 gross profit tracked in line with our estimates, higher foreign currency exchange losses on cash reserves as a result of the depreciation of US$ against RM, staff, and strategic investment costs, resulted in the miss.

While total opex rose 3% qoq (+19% yoy), SILV’s expense-over-revenue ratio stayed broadly stable qoq at c.26% in 2QFY6/23, given its strong topline growth. Albeit slight, SILV benefitted from higher net financing income due to the rising interest rate environment.

Management confident to achieve RM800m FY6/23F revenue target
SILV closed deals worth RM146m in 2QFY6/23, bringing 1HFY6/23’s total deal closure to RM275m (FY6/22: RM508m). Its deal pipeline is robust at RM1.8bn, with RM275m in the final stages of negotiation/undergoing contracting, according to management.

GohPengOoi silverlakeSilverlake founder and executive chairman Goh Peng Ooi.Going into 2HFY6/23, SILV has a secured backlog of c.RM350m.

Hence, management is confident of achieving its RM800m revenue target in FY6/23F. By segment, stronger contributions from new contracts that have become operational boosted maintenance and services revenue in 2QFY23, offsetting softer licensing income.

Of the new deals signed in 2QFY6/23, two were with new clients in Thailand and one in UAE (two Symmetry and one Mobius deal).

While these deal wins are positive, we highlight that a ramp-up of Mobius deals may result in GPM hovering around current levels (c.58%) in the medium term, given the larger staff training costs and marketing expenses involved in the early stages, before trending back up towards c.60% when the product matures.

Despite the forex distortion, SILV recorded 1HFY6/23 NPM margin of c.25% — in line with its long-term target of 25%.

Reiterate Add, with TP of S$0.44 to adjust for costs

AndreaChoong11.22Andrea Choong, analyst.Although SILV’s proportion of revenue delivered via cloud computing dipped to c.11% of revenue in 1HFY6/23 (1HFY6/22: c.13%), we believe that this should improve as Mobius gains traction across the region, especially in Thailand, following its first deal win (and implementation) there.

We tweak FY23-25F EPS to factor in increased opex.

Nonetheless, we think that strong yoy earnings growth across the banking sector could flow into stronger digitalisation/investment budgets, and catalyse SILV’s deal win momentum.

Downside risks are execution risks in rolling out Mobius on a large scale. Our TP is pegged to 16x CY23F P/E, 0.5 s.d. below mean.

Full report here

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