SINGAPORE (Jan 4): DBS Group Research is re-initiating its coverage on Silverlake Axis with a “buy” call and a target price of 60 cents.
Currently, the group’s core banking system is used by the top three of the five largest ASEAN financial institutions – CIMB Bank, OCBC Bank and UOB. And more than 40% of the top 20 largest banks in the Southeast Asia that outsourced their core banking solutions also run on the group’s core banking platform.
Meanwhile, Silverlake’s Merimen insurance platform is Asia’s top insurance software-as-a-service (SaaS) company and is ranked among the global top 10 in terms of claims processing and management solutions.
The group’s orderbook has seen a significant increase to about RM350 million currently, compared to less than RM50 million secured in FY17. It still has potential for more orders.
In a Thursday report, analyst Lee Keng Ling says, “Silverlake can leverage on its market leader position to secure more contracts as financial institutions upgrade/enhance their systems to avoid being rendered obsolete by the rising Fintech trend.”
Previously, the peak of contract wins could reach up to RM600 million a year, with an upcycle usually lasting up to six years and a downcycle about two years.
Based on the contracts secured, Ling believes that the group is at the beginning of an upcycle now.
In addition, high recurring revenue – mainly from software maintenance and enhancement services, as well as insurance processing – accounts for a substantial 60% of the group’s total revenue for the past few years.
Over the FY10-FY18 period, the group’s gross margins were also relatively high at about 60%.
“We expect this trend to continue, supported by the growing higher-margin software licensing business,” says Ling.
As at 11.30am, shares in Silverlake Axis are trading at 42 cents or 6.2 times FY19 book with a dividend yield of 4.9%.
