Investment merits intact!
Although FY13 sales were 7% below our forecast due to lower hardware sales,core EPS was in line (99%), as gross margins widened to 64%(previously 54.4%)The improvement was led by higher contributions from software licensing and recurrent maintenance revenue.
We cut FY14-15 EPS by 1% to factor in dilution from new shares placed out recently but maintain our DCF target price (WACC 7.8%) and Outperform rating. Catalysts are expected from new orders and a possible listing of its associate. We introduce FY16 forecasts.
In Jul, its recently-acquired CVSB announced a contract from Bank Rakyat, the biggest Islamic cooperative bank in Malaysia, to implement a new Internet banking system. Under the contract, CVSB will supply, install, integrate, test, implement and commission hardware, software and services for Bank Rakyat’s new Internet banking system. In addition, CVSB will provide maintenance services for five years.
What will move the needle?
In FY13, Silverlake announced three new contracts and one contract expansion totalling RM135m. Another two were also announced, though their value was not disclosed. Recognition of these contracts should boost its FY14/15 results. Apart from substantial order wins and acquisitions, another potential catalyst for its share price is possibly a listing of its Chinese associate at attractive valuations.
Strong free cash flows continue to underpin its dividend payouts. FY13 payout was 86% with the company remaining in a net-cash position. Our FY14-16 payout assumptions are 70%. Stay invested.
Publish date: 28/08/13