DBS Group Research analyst Ling Lee Keng has maintained her “buy” call and raised her target price on Silverlake Axis to 46 cents from 39 cents previously.
This comes after Silverlake released its 9MFY2022 ended March business update on May 13. Referring to the update, Ling says that license and project revenues, which have been challenging over the last two years, have exhibited a strong recovery, as evidenced from the 9MFY2022 results.
Silverlake revealed that software licensing revenue increased by 116% to RM60.9 million, largely contributed by the delivery of new software licensing contracts and banking deals secured in Indonesia and Thailand.
Meanwhile, Software project services revenue increased 57% y-o-y to RM66 million. mainly due to the ongoing implementation of two new MÖBIUS contracts.
This accounted for 36% of total project services revenue and progressive revenue contributed from other ongoing projects, with the banking business continues to be the key contributor.
Ling adds that with the rising interest rate environment, which is beneficial to banks, coupled with the gradual recovery of the global economy, Silverlake can expect more contract wins going forward.
See also: Test debug host entity
She points out, “MOBIUS, the new open banking platform, could be a gamechanger and is expected to see a higher adoption rate, while the existing core banking system remains the key contributor currently, due to the stability of the system.”
Ling likes Silverlake for its high recurring revenue contribution of at least 60% of its total revenue, as well as an “impressive” gross margin of about 60%.
In 9MFY2022, recurring revenue formed 75% of total revenue while gross margin came in at 59.5%.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
Moving forward, she expects recurring income to expand further, and remains optimistic on Silverlake’s business, given its market leader position in the core banking solutions segment.
“Digitalisation has now become a necessity instead of something that’s good to have.”
However, some key risks she does highlight is a possible slowdown in IT spending on the back of the weak global economy, which could lead to a lower orderbook.
More notably, she says there are concerns on corporate governance issues, as related party transactions with founder and group executive chairman Goh Peng Ooi’s private companies over the past few years have raised concerns on corporate governance.
As at 2.07pm, shares of Silverlake Axis were trading at 32 cents, with a FY2022 P/B ratio of 2.2 and dividend yield of 2.2%.
