Having won the Best Return on Equity award in the Software & IT Services sector at the Centurion Club for two straight years, investors may wonder, what is Silverlake Axis’ secret to delivering returns to its shareholders, year after year?
For the period under consideration for the awards, which was FY2019 to FY2021, the company’s total weighted ROE was 25.03%. In comparison, the runner-up delivered 17.33% over the three years.
In an interview with The Edge Singapore, group managing director Andrew Tan says that there is no “real silver bullet” behind the company’s success, just “a lot of sweat, a lot of hard work and a lot of tears”.
But hard work and perseverance are not the only virtues Silverlake Axis possess. More importantly, Tan says, the company has to be run well and along very solid business fundamentals.
One of these fundamentals, he says, is always “knowing what the market wants”. Some companies jump into business areas they are not familiar with while others create a product, only to find out it does not have a market.
For example, Silverlake Axis’ Möbius open digital banking platform was developed three years ago. Yet, it remains a very relevant product today, especially in an increasingly digitised world. To Tan, this shows how much the product “resonates with the marketplace.”
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One key indicator of Silverlake Axis’ relevance can be seen in its customer base. The company, to date, has provided banking solutions to 40% of the 20 largest banks in South East Asia.
It is also the “partner of choice” for three of the five largest regional financial institutions in Asean, where Silverlake Axis’ core systems platform is deeply integrated with the institutions’ operations.
More than just winning customers, Silverlake Axis has shown it can keep them too. The company boasts a 100% customer retention rate, giving it an “excellent reputation” among its clients, says Tan.
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It has made its mark not merely within the banking industry but with large corporates of other industries as well. The company now serves 380 enterprise customers in over 80 countries, with Tan saying that while the company is very much focused on Asia although it “thinks globally” and aims to compete on the global stage.
Customisable solutions
According to Tan, the main selling point of Silverlake Axis’ solutions is the ability of the company to meet its customer’s needs by fitting its solutions to their problems, instead of simply adopting a “take it or leave it” approach to the market.
“Banks differ from one to the other. Different banks have different strategies and different goals. So, we align what they want with those goals and customise [our solutions] accordingly,” says Tan.
For example, Silverlake Axis’ Möbius banking solution provides “best practice processing” for deposits, conventional lending, Islamic finance, trade finance and payments.
The highlight of Möbius, according to Tan, is that is a “cloud-native” product, which means the product is built around inherent functions and features that are available in the cloud, from systems backup and recovery to security management.
The cloud-native nature allows for Möbius to be readily configured, out-of-the-box for fast transformation in the digital banking world, and banks, to be able to quickly configure products and solutions.
However, some clients may not want to switch to the cloud fully. Some clients would like to have their sensitive data managed on their premises, and some may not want to change their entire system at one go, as it may be like “changing your engine in midflight,” Tan says.
As such, Silverlake Axis offers both an on-premise and a hybrid model for its banking solutions. Tan points out that some clients would prefer a product that has been “tested and proven”. As such, the company can offer its Silverlake Axis Integrated Banking System (SIBS) solutions, which have been deployed in 80 countries around the world and have a proven track record.
This approach has borne results, as seen in the company’s financials. For its most recent FY2022 ended June, the company recorded its highest ever full-year revenue of $736.5 million, 18% higher y-o-y and 8% higher than its previous record in FY2019. Earnings also saw a 27% y-o-y increase to RM182.2 million from RM143.1 million.
Furthermore, Tan says another “key fundamental” of Silverlake Axis is making sure that the company is always profitable. By doing this, the company is not beholden to its creditors, be it banks, private investors, or venture capital firms.
Tan reveals that Silverlake Axis is completely debt free. As at June 30, the company maintained a cash balance of RM558 million ($171.26 million), up from RM417.1 million a year earlier.
Future ventures
Despite being in this field for some three decades, Silverlake Axis is careful not to rest on its laurels and to constantly develop new industry verticals it can try and capture. In February, the company moved into the insurance tech (insurtech) space by setting up Fermion, which builds insurance ecosystems to meet the needs of the banking, financial services and insurance sectors.
This is to capitalise on Silverlake Axis’ dominance in the region’s motor insurance sector, especially in Singapore and Malaysia.
But Fermion is not simply targeted at motor insurance. In its FY2022 financial statement, Silverlake Axis says this is a “concerted strategy” to get the company into providing end-to-end insurance processing, solutions and platforms.
To that end, Silverlake Axis has also invested in two insurtech companies which will strongly complement Fermion and extend the scope of its coverage in the insurtech space.
But Tan is not stopping there. The goal for Fermion is to eventually diversify into property & casualty, health & wellness and travel insurance for both conventional and Islamic. If successful, this could transform Fermion into a leading insurance ecosystem builder in the region.
In the release of its FY2022 results, the company says it is actively pursuing about RM1.9 billion in transactions, and counts over RM500 million in contract wins in FY2022 alone.
This figure is 54% higher than FY2021, and the company says “these numbers are indicative of the strength of our brand, our longterm relationships with customers and our regional distribution and scale.”
While it keeps a close eye on its financial performance from year to year, given that it is a publicly listed company, Tan says the company is also more “focused on the long term” in terms of product building and building its relationship with its customers.
Some of the immediate priorities for the company, Tan reveals, are to increase Silverlake Axis’ revenue to RM1 billion, partly by increasing acceptance for Möbius, and for Fermion to grow from an RM100 million entity to one worth RM500 million.
Rewarding shareholders
Now, even as Silverlake Axis explores new business areas of business and works to maintain its 100% track record for its customers, the company has not ignored its shareholders, rewarding their ownership appropriately.
Alongside the improved results, dividends for FY2022 increased from 0.52 cents per share in FY2021 to 0.7 cents in FY2022. At the current share price of 31 cents on Nov 7, this represents a dividend yield of 2.26%.
Shareholders seem to be taking well to the company’s prospects, with Silverlake Axis’ share price climbing from 29 cents at the beginning of the year to 31 cents per share as of Nov 7, a 12.73% gain.
In March, Silverlake Axis conducted what is known as an off-market equal access offer, where it bought back up to 242.4 million of its shares at 33 cents per share. At the time of the offer on March 11, the offer price was 17.86% higher than its last traded price of 28 cents.
In its offer document, Silverlake Axis explained that the share buybacks would increase the company’s earnings per share (EPS) and provide shareholders with an opportunity to sell their shares at a premium over prevailing market prices without incurring transaction costs.
As such, the equal access offer was the company’s way of returning profits to its shareholders by offering them a share buyback at a price that is far superior compared to the market price.
When asked what is the message he intends to send to the market, Tan simply says that he believes the company’s shares are undervalued, and points to Silverlake Axis’ results, adding that with the company constantly delivering record revenue numbers, a gross profit margin of about 60%, and a double-digit profit growth for FY2022, “we should be the envy of the industry”.
That goal may not be too far away for the company. As it stands, Silverlake Axis’ market capitalisation stands at $778 million. Should the company manage to spur investor confidence in its shares, the Billion Dollar Club could welcome Silverlake Axis into its ranks sooner, rather than later.
