CGS-CIMB Research’s Andrea Choong has maintained her “buy” call on Silverlake Axis and increased her target price on the stock to 35 cents from 31 cents previously.
In a July 12 report, Choong says that Silverlake Axis has been “swept under the radar”, as it has underperformed expectations over the past few quarters as financial institutions (FIs) hold back on capex and tech spending, impacting order win momentum.
She adds, “having endured over a year of stop-and-go movement restriction orders, we think that tides are turning for Silverlake Axis as investment appetites from banks stage a comeback, having adapted to new normal operating conditions, further spurred by the onset of digital banks across the region.”
She also notes that Silverlake Axis is the core banking system (CBS) provider for several digital bank licence applicants in Malaysia.
See also: Silverlake Axis seeks out new growth models as it maintains bet on core banking’s relevance
As such, Choong highlights that the roll out of Mobius, a cloud-based core banking system, is core to the company’s earnings recovery.
She understands that Silverlake Axis is finalising its first order win from a top-tier bank in Thailand, with a contract value of about RM40-50 million ($12.8-$16.1 million).
Apart from an aggressive push into Thailand and Indonesia by beefing up its engagement teams, she thinks that Mobius’ pricing structure is a key client conversion tool, as upfront capital outlay for customers are much lower compared to a traditional product model, with the rest of the billings spread out over coming years.
Her view is that this first deal will be a key catalyst for further order wins, alongside Silverlake Axis’ efforts in converting clients of one of its products reaching end-of-life in 2023 onto this cloud-based platform.
Choong expects the company to record a net profit of RM45 million in 4QFY6/21, which is 15% higher q-o-q and 101% higher y-o-y. This comes on the back of project execution progress and good cost control.
She also sees that “Going into a new financial year, Silverlake Axis aims to have booked about 60% of its budgeted committed revenue stream, tracking well to our forecast revenue of about RM702 million in FY2022.”
The company also projects gross and net profit margins to stay stable at about 60% and mid-20% respectively, as Mobius gains traction. Margin upside will come from software licencing order wins, Choong adds.
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Moving forward, operational headwinds, such as investment hesitancy by banks are bottoming out, and sees significant growth prospects from deferred core banking deals coming back into the picture.
Choong also highlights that the company is also not limited in its capacity to carry out project implementation or maintenance during the Movement Control Order (MCO) in Malaysia.
Silverlake Axis closed at 28 cents, 0.5 cent higher or 1.79% up compared to the previous day, with a FY2021 price to book ratio of 2.82 and dividend yield of 2.69%.
