Silverlake Axis -
Share Price S$0.90
Target Price S$0.91
Key Takeaways From Results Briefing
Our view on SAL is unchanged after we met with management. While fundamentals remain solid, we think the stock’s outperformance now places it as being fairly valued. Near-term potential catalysts will be new contract announcements, higherthan- expected contributions from Cyber Village and Merimen, and earningsaccretive M&As.
Maintain HOLD. Target price: S$0.91. Entry price: S$0.80.
• Group Managing Director, Dr Raymond Kwong, hosted a results briefing for analysts post the release of Silverlake Axis’ (SAL) results. This report highlights the key takeaways.
• Some delay in contract wins but we are not worried as final-stage negotiations are typically protracted. Several mid-sized and large-sized bids by SAL are currently at the final stages and we expect some contract win announcements in 2HFY14. The group has an orderbook backlog of close to RM250m as at end-Dec 13, which will be recognised over an 18-month period.
• Maintenance and enhancement (M&E) services revenue picked up as expected; insurance contribution on track to meet our full-year forecast. We expect M&E revenue to hit the RM200m target in FY14 (FY13: RM174m) as the growth is sustained in the subsequent periods. This will be supported by new M&E contracts from its CIMB project, where new installations in Malaysia were recently completed. We also forecast a top-line contribution of RM23m from the consolidation of Merimen’s insurance processing business. The division has made headway in penetrating Indonesia.
• Developing new offerings in mobile, internet and analytics to expand their suite of services and market scope. With non-traditional banks increasingly taking a share of the financial services pie, SAL is working on enhancing its capabilities to be able to access this other segment and ride on trends such as e-payment.
• Resubmitted application for listing of Chinese associate, Global InfoTech Co. (GIT), an information technology services firm focused on the financial services sector in China. While we have not factored this into our forecasts, management estimates the earliest possible listing date could be in end-14 or early-15. GIT’s contribution in 1HFY14 more than doubled (+165% yoy) to RM4m on the back of an increase in business activity. We view this as a good indication of the market’s potential and are encouraged by the management’s active engagement with local banks. SAL holds a 27% stake in GIT.
• Still considering M&A opportunities but management has not identified any good prospects for now. We think it will more likely consider opportunities that will allow SAL to expand its mobile, internet and analytics services. A healthy cash balance of RM332m as at end-Dec 13 will support potential acquisitions. We would view earnings-accretive M&As similar to Cyber Village and Merimen positively.
• We have tweaked our earnings forecasts by 2-5% post 1HFY14 results and updates from management. Our FY14-15F net profit projections are lower by 2-3% while FY16F is higher by 5%. We project a 3-year (FY13-16F) earnings CAGR of 17%.
• Raise FY14 dividend forecast to 3.2 S cents/share (previously 3.0 S cents) after the group announced an interim dividend of 0.9 S cents/share (87% payout) for 2QFY14, up 29% yoy. This brings total dividend ytd to 1.7 S cents/share. We continue to view the high payout as a sign of management’s confidence in its performance in FY14. SAL’s end-Dec 13 cash balance is equivalent to 6 S cents/ share.
• Key risks include failure to secure new contracts and execution risk.
• Maintain HOLD and target price of S$0.91, based on our DCF model. We think the stock is fairly-valued at its current level. SAL is trading at 20x our FY15F EPS estimate, within its historical PE band of 1.2-24.1x since 2004. We would look to enter closer to S$0.80.
SHARE PRICE CATALYST
• New order wins.
• Higher-than-expected contributions from Merimen and Cyber Village.
• Successful listing of GIT in the near term.
• Earnings-accretive M&As.
Publish date: 13/02/14