CGS-CIMB analyst Ong Khang Chuen has upgraded his recommendation on Silverlake Axis to “add” from “hold” as he believes the worst is over for the company.
Ong has also increased his target price to 39 cents from 26 cents previously, which represents a 27.9% upside to the counter.
Silverlake Axis posted 4Q20 core net profit of RM22 million ($7.2 million), representing a 61% drop y-o-y, while its FY20 net profit fell 32% y-o-y to RM143 million on August 26.
The company also lowered its dividend payout ratio to 40% in FY20 compared to the 60% paid out in FY19.
While the company’s FY20 core net profit came in lower than expected at 85% of Ong’s full-year forecasts and 89% of Bloomberg consensus forecasts, Silverlake Axis’ order book grew to some RM390 million as at end June from RM320 million as at end March.
See: Silverlake Axis posts 12% drop in 4Q earnings to $19.4 mil on lower revenue
“With strong order backlog and lockdown measures easing globally, we expect Silverlake Axis’ project-related revenue to stage a strong rebound in FY21F (+22.5% y-o-y). Recurring revenue segments should also continue to grow at a stable pace; we forecast SILV to achieve topline growth of 9.2% y-o-y in FY21F,” says Ong.
In August, Silverlake Axis also launched its cloud-ready core banking system, Mobius, which can eb made available as a software-as-a-service (SaaS) offering.
Active enquiries for this initiative bolstered the company’s potential order pipeline to around RM1.6 billion currently.
“We believe the SaaS model can help minimise capital outlay required for banks, thus lowering barriers to adoption. We have yet to factor this potential into our model,” Ong adds.
Ong has therefore raised his earnings per share (EPS) estimates for FY21-FY22 by 4.1%-4.9% to “reflect higher project-related revenue assumptions”.
“Upside risks include major core banking contract wins or SILV cashing out on its stakes in Global Infotech. Deferred tech spending by banks in Asean is a key downside risk to our call,” he says.
As at 12.50pm, shares in Silverlake Axis were trading 0.5 cent lower, or 1.6% down, at 30 cents.
