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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1

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

RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) th 12 Floor World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 1118 Fax : +(852) 2810 0908

DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211

Jakarta

Shanghai

Phnom Penh

PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 14th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777

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

6

Silverlake Axis (SILV SP) Stellar FY14 Performance But ...

Aug 28, 2014 - Silverlake Axis is a leading software services and solutions provider that caters to ... proprietary positions in the subject companies, except for:.

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