Analysts from PhillipCapital and DBS Group Research are keeping their “buy” calls following Silverlake Axis 5CP ’s earnings of RM48.9 million ($14.4 million) for its 1QFY2024 ended Sept 30.
See more: Silverlake Axis earnings down 15% y-o-y in 1QFY2024; recurring revenue stays strong
The analysts at PhillipCapital and DBS have also kept their target prices unchanged at 38 cents and 35 cents respectively.
Silverlake Axis achieved its highest earnings in the current quarter when compared to the three previous quarters, but fell short of the corresponding period last year, primarily due to the recognition of a substantial software licensing contract in 1QFY2023.
Despite this, revenue in the quarter remained relatively stable, showing a modest y-o-y increase of 1% to reach RM189.2 million. This growth was attributed to the robust performance of its maintenance and enhancement services, as well as its project services businesses.
PhillipCapital analyst, Glenn Thum, notes that Silverlake Axis' 1QFY2024 earnings were “slightly above” his estimates.
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He writes: “Maintenance and enhancement services grew 8% y-o-y to RM124 million from strong enhancements and change request revenue as Silverlake continues to guide its customers in modernising their core platforms with growth coming from clients in Southeast Asia, the Middle East and Europe. Silverlake expects this segment to continue to grow as new maintenance contracts and support will commence when current projects are completed and successfully handed over to clients.”
Additionally, the company’s insurance ecosystem transactions and services revenue increased 2% y-o-y, to which Thum attributes to “broad-based growth” across all of Silverlake Axis’ segments, from vehicle claims processing, insurance policies processing, productivity and analytics solutions, to integration services.
On the end of the company’s retail transactions processing, the analyst observes that revenue grew 32% y-o-y, thanks to the increased usage and subscriptions to new modules for Silverlake Axis’ cloud-based retail solution, AgoraCloud.
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Meanwhile, the company’s project-related revenue fell 12% y-o-y, as the segment’s software licensing revenue fell 66% y-o-y, due to 1QFY2023’s inclusion of a large software licensing transaction from an Indonesian client.
Outlook
The PhillipCapital analyst observes that Silverlake Axis has a tender book of RM1.8 billion going into the rest of FY2024, with “more than half” coming from its core banking systems, MOBIUS and Symmetri.
“While the initial revenue from these systems will be smaller as compared to legacy core banking systems, such as the Silverlake Integrated Banking Solution or SIBS, we expect it to improve recurrent fees,” adds Thum.
The company has also signed a deal with one of the largest banks in Thailand, and its first multi-million 10-year core and channels digital banking MOBIUS deal with a client in Malaysia.
On this, Thum writes: “Silverlake has seen a shift towards Software-as-a-Service (SaaS) and cloud computing, and with Silverlake’s offering of cloud-based systems, we could expect the demand for these systems to continue going into the rest of FY2024.”
The team of analysts at DBS also write that the company’s deal pipeline remains robust, increasing to around RM1.8 billion from around RM1.5 billion in the previous quarter.
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They note: “Over RM 200 million in deals are in advanced stages of negotiation with a high probability of closure in the coming quarters.”
The team continues to like Silverlake Axis for its higher recurring revenue, which is “around 75%” of its total revenue, as well as its attractive gross margin of close to 60%.
Shares in Silverlake Axis closed at 0.5 cents lower or 1.79% down on Nov 21.
