Silverlake Axis Ltd – Riding on new product cycles August 29, 2023 338

PSR Recommendation: BUY Status: Maintained
Last Close Price: 0.27 Target Price: 0.38
  • 4Q23 earnings of RM36.4mn were below our estimates. FY23 earnings were at 87% of our FY23e. The 24% YoY dip in earnings came from lower-than-expected project-related revenue and higher-than-expected tax expense. FY23 DPS was 14% lower YoY at 0.60 cents.
  • 4Q23e recurring revenue comprising maintenance and enhancement services, insurance ecosystem transactions and services, and retail transactions processing revenue grew 7% YoY, while project-related revenue comprising software licensing and software project services fell 4% YoY. Orderbook is RM665mn.
  • We maintain a BUY rating on Silverlake Axis Ltd with a lower target price of S$0.38. We lower FY24e earnings by 20% as we lower revenue estimates and increase tax estimates for FY24e. Our target price is pegged to 20x P/E FY23e. We expect MOBIUS and the recovery in bank IT spending after two cautious pandemic years to be the key growth drivers for the company.


The Positives

+ Recurring revenue rose 7% YoY. Recurring revenue comprises maintenance and enhancement services, insurance ecosystem transactions and services, and retail transactions processing revenue. Maintenance and enhancement services grew 6% YoY to RM140mn and Silverlake expects this segment to continue its growth as new maintenance contracts and support will commence when current projects are completed and successfully handed over to the clients. Insurance ecosystem transactions and services revenue increased 19% YoY as there was broad-based growth across all segments, from vehicle claims processing, insurance policies processing, productivity and analytics solutions, and integration services. Revenue from retail transactions processing grew 20% YoY mainly due to increased usage for Silverlake’s cloud-based retail solution, AgoraCloud. As this is a usage-based model, Silverlake has seen increased usage from their existing base of four clients as well as new clients whom they have signed up.

+ Order backlog healthy. Silverlake has a long track record and a proven client base in Southeast Asia. Three of the 5 largest Southeast Asia-based financial institutions use its core banking platform, and it has largely retained all its clients since bringing them on board its platform. Silverlake’s project pipeline is healthy, at RM1.5bn (3QFY23: RM1.8bn), with contract wins of RM93mn in 4QFY23 and an order backlog of RM223mn on the verge of closing in 1QFY24. Furthermore, Silverlake expects revenue from the multi-million 10-year core and channels digital banking MOBIUS deal with a client in Malaysia to come in FY24. Silverlake is beginning to close more deals and is witnessing an uptick in inquiries about its financial services market solutions and capabilities.

The Negatives

– OPEX rose 13% YoY. Operating expenses were 13% higher YoY mainly due to the current inflationary environment, and to support growth in new delivery of services projects and future proofing of long-term growth and sustainability of their business. The increase was across all segments, with increases in staff costs due to additional headcount, increase in finance costs due to a revolving credit facility drawdown, increase in foreign currency exchange losses due to the fluctuation of foreign currencies, and higher costs for internal and external branding activities as markets opened up. Nonetheless, the expense over revenue ratio was kept at 33%.

– Project-related revenue fell 4% YoY. Software licensing revenue fell 54% YoY was due to the progression of actual project delivery varying from quarter to quarter, resulting in a lag in revenue contribution. However, this was offset by software project services revenue increasing 42% YoY as there was additional revenue recognised from recently closed contracts from countries such as Thailand, UAE, and Malaysia. In addition, progressive project revenue recognised from on-going secured projects remained at a stable level.

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About the author

Profile photo of Glenn Thum

Glenn Thum
Research Analyst

Glenn covers the Banking and Finance sector. He has had 3 years of experience as a Credit Analyst in a Bank, where he prepared credit proposals by conducting consistent critical analysis on the business, market, country and financial information. Glenn graduated with a Bachelor of Business Management from the University of Queensland with a double major in International Business and Human Resources.

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