Results Review, 28 August 2014
Silverlake Axis (SILV SP)
Neutral (Maintained)
Technology - Software & Services Market Cap: USD2,080m
Target Price: Price:
SGD1.12 SGD1.16 Macro Risks
Stellar FY14 Performance But Uncertainty Lurks
Growth Value
Silverlake Axis (SILV SP) Price Close
Relative to Straits Times Index (RHS)
1.30
174
1.20
161
1.10
148
1.00
135
0.90
123
0.80
110
0.70
97
0.60 30
84
0 0 .2 0 0 Silverlake posted record FY14 results with recurring NPAT up 27% y-o-y . 0 to MYR248.9m on a 26% y-o-y rise in revenue to MYR500.7m. This beat 0 our NPAT estimate by 3%. It has kept a strong MYR346m net cash 0 position and proposed a total dividend of 1.8 cents. However, with uncertainties over a major deal and our revised DCF-backed SGD1.12 TP approaching current levels, we downgrade to NEUTRAL (from Buy).
25 20 15
Jul-14
May-14
Feb-14
Dec-13
Oct-13
5
Aug-13
Vol m
10
Source: Bloomberg
Avg Turnover (SGD/USD)
2.03m/1.63m
Cons. Upside (%)
-0.9
Upside (%)
-3.0
52-wk Price low/high (SGD)
0.71 - 1.22
Free float (%)
24
Share outstanding (m)
2,245
Shareholders (%) Peng Ooi Goh
67.6
2 . 1 0 . 2
Stellar FY14 performance. Silverlake Axis (Silverlake) delivered record FY14 net profit and revenue of MYR248.9m (+27%) and MYR500.7m (+26%) respectively, exceeding our NPAT forecast by 3%. Revenue from maintenance and enhancement services grew 21% to MYR210.3m on the back of new contracts secured in Malaysia, Singapore, Indonesia and Thailand. The group also benefitted from a full-year contribution by Merimen Group and a maiden contribution from Cyber Village SB (CVSB) in FY14. Software licensing revenue rose 23% y-o-y to MYR147.7m with the delivery of several major contracts as well. Strong net cash position with special dividend. As of 30 June 2014, Silverlake had a strong net cash position of MYR346m and given its stellar performance in FY14, the company has proposed a special and final dividend of 0.6 cents and 1.2 cents respectively. Together with the interim dividend, total FY14 dividend amounts to 4.5 cents, in line with our 4.4% FY14 dividend yield forecast. Downgrade to NEUTRAL with higher TP of SGD1.12. Going forward, analyst Jarick Seet will assume coverage from Edison Chen. We have adjusted our FY15/FY16F estimates by +6/+8% on the back of potential Wing Hang and RHB deals, resulting in a higher DCF-backed TP of SGD1.12 (from SGD1.00), close to current levels. We feel that valuations seem stretched at higher price levels, as even at current price levels, it represents a FY15F P/E of 23x and a PEG of 1.76x. Coupled with the uncertainty surrounding the RHB deal – with the value of the deal dependant on the outcome of the merger – we downgrade our call to NEUTRAL from Buy, with our TP revised higher to SGD1.12 (from SGD1.00).
Share Performance (%) YTD
1m
3m
6m
12m
Forecasts and Valuations
Jun-12
Jun-13
Jun-14
Jun-15F
Jun-16F
Absolute
31.3
(0.4)
16.1
32.0
57.1
Total turnover (MYRm)
400
399
501
537
606
Relative
26.4
0.4
14.6
24.7
47.6
Reported net profit (MYRm)
162
196
249
285
322
Recurring net profit (MYRm)
162
196
249
285
322
Recurring net profit growth (%)
40.8
20.8
27.0
14.5
13.0
Recurring EPS (MYR)
0.08
0.09
0.11
0.13
0.14
DPS (MYR)
0.05
0.08
0.10
0.11
0.11
Recurring P/E (x)
37.7
31.5
26.3
22.9
20.3
P/B (x)
20.5
10.5
10.6
10.0
9.0
P/CF (x)
43.2
33.5
23.3
30.2
21.3
Shariah compliant
Jarick Seet +65 6232 3891
[email protected]
Terence Wong CFA +65 6232 3896
Dividend Yield (%)
[email protected]
EV/EBITDA (x) Return on average equity (%) Net debt to equity (%)
1.6
2.7
3.4
3.8
3.8
24.9
23.4
19.3
17.2
15.1
63.6
44.3
41.3
44.9
46.5
net cash net cash net cash net cash net cash
Our vs consensus EPS (adjusted) (%)
5.8
19.6
Source: Company data, OSK-DMG
See important disclosures at the end of this report
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Silverlake Axis (SILV SP) 28 August 2014
Financial Exhibits Profit & Loss (MYRm)
Jun-12
Jun-13
Jun-14
Jun-15F
Total turnover
400
399
501
537
606
Cost of sales
(183)
(145)
(194)
(183)
(206)
Gross profit
217
254
307
354
401
Gen & admin expenses
(33)
(35)
(41)
(44)
(49)
(8)
(10)
(7)
(8)
2
2
8
Operating profit
178
210
Operating EBITDA
189
219
Selling expenses Other operating costs
Jun-16F
(9)
-
-
267
303
343
281
315
355
Depreciation of fixed assets
(2)
(1)
(2)
(2)
(2)
Amortisation of intangible assets
(9)
(7)
(12)
(11)
(11)
Operating EBIT
178
210
267
303
343
Net income from investments
1
2
7
8
9
Interest income
1
2
3
3
3
Interest expense
(0)
(1)
(3)
(0)
(0)
Pre-tax profit
180
213
274
313
354
Taxation
(18)
(17)
(25)
(28)
(32)
Minority interests
-
-
(0)
(0)
Profit after tax & minorities
162
196
249
285
322
Reported net profit
162
196
249
285
322
Recurring net profit
162
196
249
285
322
Jun-12
Jun-13
Jun-14
Jun-15F
Jun-16F
178
210
267
303
343
11
9
14
13
12
(38)
(21)
26
(72)
(16)
(0)
Source: Company data, OSK-DMG
Cash flow (MYRm) Operating profit Depreciation & amortisation Change in working capital Other operating cash flow Operating cash flow
3
4
1
1
154
203
304
245
340
-
-
-
-
Interest received
1
Interest paid
(0)
Dividends received
3
(3)
(0) -
(1) -
(0) -
(0) -
Tax paid
(16)
(18)
(23)
(28)
(32)
Cash flow from operations
142
184
280
216
307
Capex
(2)
(3)
(6)
Other investing cash flow
(34)
(83)
(106)
3
3
Cash flow from investing activities
(36)
(86)
(112)
(1)
(1)
Dividends paid
(78)
(149)
(224)
(247)
(247)
(3)
61
-
-
-
180
-
-
-
Shares repurchased Proceeds from issue of shares
-
(4)
Increase in debt
(0)
22
(23)
-
Other financing cash flow
(1)
(1)
(1)
-
Cash flow from financing activities
(82)
(247)
(247)
(247) 201
73
98
311
233
Total cash generated
24
213
(79)
(32)
0
1
1
98
312
233
Implied cash at end of period
-
114
Cash at beginning of period Forex effects
(4)
59
-
-
201
260
Source: Company data, OSK-DMG
See important disclosures at the end of this report
2
Silverlake Axis (SILV SP) 28 August 2014
Financial Exhibits Balance Sheet (MYRm) Total cash and equivalents
Jun-12
Jun-13
Jun-14
Jun-15F
Jun-16F
98
362
350
318
377
5
39
22
50
56
122
101
103
136
154
Inventories Accounts receivable Other current assets
29
36
42
42
42
Total current assets
253
539
516
546
629
Total investments
64
67
74
82
91
Tangible fixed assets
11
10
13
13
12
Intangible assets
71
127
162
153
146
Total other assets
1
2
2
2
2
Total non-current assets
147
205
250
250
250
Total assets
400
744
767
795
879
1
10
1
1
1
Accounts payable
22
42
63
53
59
Other current liabilities
58
52
51
50
51
Total current liabilities
81
103
115
104
112
2
15
3
3
3
19
37
33
33
33
Short-term debt
Total long-term debt Other liabilities Total non-current liabilities
22
52
35
35
35
Total liabilities
103
156
150
140
147
Share capital
151
157
157
157
157
Retained earnings reserve
259
307
332
370
445
(112)
124
127
127
127
Shareholders' equity
298
588
616
655
730
Minority interests
-
-
0
1
2
Other equity
-
-
(0)
(0)
(0)
Total equity
298
588
616
656
732
Total liabilities & equity
400
744
767
795
879
Other reserves
Source: Company data, OSK-DMG
Key Ratios (MYR)
Jun-12
Jun-13
Jun-14
Jun-15F
Jun-16F
Revenue growth (%)
31.0
(0.4)
25.6
7.3
12.9
Operating profit growth (%)
25.2
18.2
26.9
13.3
13.2
Net profit growth (%)
40.8
20.8
27.0
14.5
13.0
EPS growth (%)
41.0
19.7
19.9
14.5
13.0
Bv per share growth (%)
39.9
95.8
(1.1)
6.2
11.5
Operating margin (%)
44.5
52.8
53.3
56.4
56.5
Net profit margin (%)
40.6
49.2
49.7
53.1
53.1
Return on average assets (%)
45.1
34.3
33.0
36.5
38.5
Return on average equity (%)
63.6
44.3
41.3
44.9
46.5
(31.6)
(57.4)
(56.1)
(48.0)
(51.0)
DPS
0.05
0.08
0.10
0.11
0.11
Recurrent cash flow per share
0.07
0.09
0.12
0.10
0.14
Net debt to equity (%)
Source: Company data, OSK-DMG
See important disclosures at the end of this report
3
Silverlake Axis (SILV SP) 28 August 2014
SWOT Analysis A leader in a niche market
Competitive pricing from Indian software
Long-term earnings visibility with 55-60% recurring revenue
Competition in credit card processing services from US-based FIS
Solid financial health
Regional M&A activities among financial institutions spurring IT spending Underpenetrated market in North Asia
Dependent on IT spending of financial institutions
P/E (x) vs EPS growth
P/BV (x) vs ROAE
24%
15
18%
10
12%
5
6%
0
0%
P/E (x) (lhs)
EPS growth (rhs)
Source: Company data, OSK-DMG
15
42%
10
28%
5
14%
0
0%
P/B (x) (lhs)
Jan-16
20
56%
Jan-15
30%
20
Jan-14
36%
25
70%
Jan-13
30
25
Jan-12
42%
Jan-16
48%
35
Jan-15
40
Jan-14
54%
Jan-13
60%
45
Jan-12
50
Return on average equity (rhs)
Source: Company data, OSK-DMG
Company Profile Silverlake Axis is a leading software services and solutions provider that caters to the banking industry. The company has more than 100 clients in Asia, including 40% of the top 20 banks by size in South-East Asia.
See important disclosures at the end of this report
4
Silverlake Axis (SILV SP) 28 August 2014
Recommendation Chart Price Close 1.00
0.89
0.82
0.58 0.71
0.49
1.08
0.50
Recommendations & Target Price
na
1.28
0.88 0.68 0.48
0.28 Buy 0.08 Aug-09
Neutral
Dec-10
Sell
Trading Buy
Mar-12
Take Profit
Not Rated
Jun-13
Source: OSK-DMG, Bloomberg Date
Recommendation
2014-08-28
Neutral
Target Price Price 1.12
1.16
2014-05-07
Buy
1.00
0.88
2013-11-13
Buy
1.00
0.85
2013-11-12
Buy
1.00
0.84
2013-08-29
Buy
0.89
0.73
2013-05-20
Buy
0.82
0.81
2013-03-11
Buy
0.71
0.62
2013-02-05
Buy
0.58
0.53
2012-11-15
Neutral
0.50
0.46
2012-08-29
Buy
0.49
0.39
Source: OSK-DMG, Bloomberg
See important disclosures at the end of this report
5
DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage
DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independen tly evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as “RHBIB” which in turn is a whollyowned subsidiary of RHB Capital Berhad) and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. This report is therefore classified as a non-independent report. As of Error! Bookmark not defined., DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) Error! Bookmark not defined. As of Error! Bookmark not defined., none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: a) Error! Bookmark not defined. DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N)
Kuala Lumpur
Hong Kong
Singapore
Malaysia Research Office RHB Research Institute Sdn Bhd Level 11, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693
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Jakarta
Shanghai
Phnom Penh
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RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 1168 Nanjing West Road Shanghai 20041 China Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633
RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) 23 969 161 Fax: +(855) 23 969 171
Bangkok RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower 98, North Sathorn Road,Silom Bangrak, Bangkok 10500 Thailand Tel: +(66) 2 862 9999 Fax : +(66) 2 108 0999
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