Analysts from CGS-CIMB Group Research and KGI Securities have maintained their “add” and “neutral” calls on Silverlake Axis, but have lowered their target prices after its 2QFY2021 results came in below expectations.
Silverlake’s revenue came in at RM160 million ($52.4 million), while EBITDA came in at RM68.8 million and profit before tax and minority interests (PATMI) stood at RM32.9 million. On a semi-annual basis, sales are 13% lower y-o-y while PATMI is down 32% y-o-y.
KGI Securities’ Kenny Tan gave a target price of 26 cents, down from 29 cents, and elaborated that business weakness remained in software licensing and project services as key banking customers continued to hold back on large project spending.
He noted that recurring maintenance and enhancement service revenue increased on a q-o-q basis, but is relatively flat y-o-y, supported by customers’ current preference to commit to small scale projects over large projects.
As such, Silverlake has also deferred its usual interim dividend to the year-end. Tan also highlighted that while the top line and gross margins saw steady improvement, the bottom line remained weak with 21.6% net profit margin, an all-time low.
SEE: Silverlake Axis reports 34% lower 2Q21 earnings of $11.3 mil due to lower project-related revenue segments
While selling & distribution expenses were kept low, admin expenses were picked up from FX losses. Income tax rates also came in above management and consensus expectations at 38.3% of Profit Before Tax, implying a 30+% tax environment for Silverlake in FY2021, barring exceptional tax credits.
Going forward, he continues to expect the software business to recover in FY2021, as customer engagement on Mobius, the new cloud-based core banking system, is improving.
Silverlake also secured about RM180 million of new orders in the quarter, with about RM260 million of backlog and Tan said this was “a high likelihood of achieving sales growth out of the FY2020 trough.” Furthermore, management has also noted that steps are being taken to control the tax situation.
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CGS-CIMB’s Ong Kang Chuen, lowering Silverlake Axis’s target price to 26 cents from 33 cents, largely concurs with Tan’s points.
He has also estimated that larger deals will continue to be a challenge to close due to the cautious business environment.
Furthermore, Ong noted that management noted its banking clients continue to spend on smaller incremental enhancement.
On the uptick in order wins in 1HFY2021, Ong says he expects Silverlake to continue reporting sequentially stronger earnings in upcoming quarters, with a healthy order backlog of RM260 million.
“Helped by an easier comparison base, we believe Silverlake can achieve topline of RM376 million (+22% h-o-h; +22% y-o-y) and core net profit of RM99m (+46% h-o-h; +106% y-o-y) in 2HFY2021.” Ong predicts.
As at 2.20 pm, shares of Silverlake were trading at 26 cents per share, with an FY2021 price to book (P/BV) ratio of 2.52 times and a dividend yield of 3.24%.
