SINGAPORE (Feb 15): RHB Research and DBS Vickers Securities are maintaining their “buy” calls on Silverlake Axis with target prices of 65 cents and 62 cents, which represent a 26% and 19% upside, respectively.
This comes after the provider of digital economy solutions & services saw its earnings double to 67.5 million ringgit ($22.5 million) in 2Q from 34 million ringgit in the previous year, mainly due to higher revenue from its maintenance and enhancement services segment.
In a Friday report, RHB analyst Jarick Seet says he believes the group is on track for a healthy FY19 considering its improving fundamental and strong earnings growth, as evident over 1H.
Looking ahead, he expects the strong earnings growth momentum and margin improvement to continue into 3-4Q19 as the group continues to execute its large sized Malaysian contract.
Seet is also particularly positive on Silverlake’s management intention to reward its shareholders with better dividends.
“We believe Silverlake will likely conduct more share buybacks, similar to 2018 – this should be positive for the company… Due to the company’s share buybacks previously, we expect the payout ratio for 2HFY19 to be 60-70%, resulting in a projected FY19 yield of 4.6%,” he adds.
Similarly, DBS is expecting Silverlake’s current trend of high recurring revenue and margins to continue going forward, supported by the growth of its higher-margin software licensing business.
The research house’s target price is derived from the peer average of 21 times FY19F P/E based on the group’s FY June 20F earnings, which implies an attractive 4-5% dividend yield.
Commenting on the group’s growing project orderbook, DBS analyst Ling Lee Keng says she expects the group to win even more orders in regions like Thailand, Indonesia and Vietnam, which would further boost the group’s share price as it tends to move in tandem with contract wins.
“We believe that there is still more upside to Silverlake Axis’ share price despite the recent spike, as we expect contract wins momentum to continue,” says Ling.
As at 3.57pm, shares in Silverlake Axis are up by 3 cents at 54 cents or 7.76 times FY19F book value according to RHB estimates.
