SINGAPORE (Apr 25): CIMB Research is maintaining its “add” recommendation on Silverlake Axis, ahead of renewed growth prospects following the expansion of its fintech capabilities via the earnings-accretive acquisition of three entities.
The three Malaysian-incorporated private companies – Silverlake Digital Economy (SDE), Silverlake Digitale (SDS), and Silverlake One Paradigm (SOP) – are each 70%-owned Silverlake’s executive chairman Goh Peng Ooi.
See: Silverlake Axis to proceed with acquisition of three firms linked to chairman Goh
“We estimate contributions of close to 19.2 million ringgit ($6.5 million) from these entities in our FY19F net profit forecast, assuming 15% y-o-y earnings growth for these entities,” says analyst Colin Tan in a report on Tuesday.
“This implies an 8x FY19F P/E multiple based on aggregate base consideration of 154.9 million ringgit for the acquisition, which was satisfied via transfer of 70.1 million treasury shares,” he adds.
According to Silverlake, the acquisitions are expected to enhance the group’s digital platform offerings to capture fintech opportunities among banks and also extend its services to the non-banking sector.
“We believe banks will progressively transform the middle and front-end layers of their IT systems to embrace current digital innovations and open banking – allowing third-party developers to build applications and services around financial institutions and giving consumers ownership over their financial data,” says Tan.
Meanwhile, CIMB says its channel checks revealed that certain major bank clients in Southeast Asia are generally resistant to forsaking their core back-end system data centres due to high switching charges imposed by system integrators.
“Hence, we opine that SILV will continue to enjoy long-term recurrent income from financial institutions in its key Southeast Asian market for the upkeep of their core systems,” Tan says.
At the same time, Tan notes that Silverlake is paving the way for leadership renewal.
Goh Shiou Ling, the daughter of the current group executive chairman, will be redesignated as executive director, from her current role as non-executive director.
Silverlake on Apr 16 also appointed a new managing director for the group’s core banking business.
“We believe that these new appointments will facilitate the group’s focus on expanding its operations post acquisition of the three private entities,” Tan says.
CIMB has a target price of 58 cents on Silverlake, lowered from 65 cents previously.
“Following a transfer of analyst coverage, we lower our FY18-19F EPS forecasts by 20-36%,” Tan says.
As at 1.24pm, shares of Silverlake Axis are trading 1.5 cents up, or 2.8% higher, at 54.5 cents. This implies an estimated price-to-earnings ratio of 16.5 times for CY19F, which is some 20% below its historical 6-year average of 20.7 times.
