CGS-CIMB is maintaining its ‘add’ call on Silverlake Axis despite seeing its 1QFY2021 results fall short of expectations. CGS-CIMB analyst Ong Khang Chuen has tweaked the target price of the financial services software provider down 1 cent to 38 Singapore cents.
“1QFY6/2021 core net profit of RM33 million ($10.81 million) (+48% q-o-q, -30% y-o-y) was below expectations, coming in at 17% of our FY2021F forecasts. The key surprise was weaker-than-expected topline (-5.5% q-o-q, -9.8% y-o-y), which management attributed to temporary disruptions arising from a cybersecurity incident in September,” says Ong in a Nov 13 note.
Margins were pressured due to unfavourable revenue mix resulting in lower GPM and higher effective tax rate due to loss of pioneer status by a Malaysian subsidiary.
While large core banking deals continue to be a challenge to close due to the cautious business environment, management noted that its banking clients continue to spend on smaller incremental enhancement.
See: Silverlake Axis posts 12% drop in 4Q earnings to $19.4 mil on lower revenue
“Order wins picked up in 1QFY2021, with Silverlake clinching approximately RM80 million worth of new orders (FY2020: approximately RM220 million), and management remains confident of securing more in the coming quarters,” Ong says.
Silverlake also notes that the level of engagement for its new cloud-based core banking system Mobius has picked up further. Mobius can be made available as a software-as-a-service offering, and the minimal capital outlay by banks could lower the barrier to adoption, notes Ong. “We view customers’ upgrade roadmap to Mobius as a potential medium-term driver for Silverlake but have yet to factor this into our model.”
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Silverlake’s orderbook stands at approximately RM350 million as at end-September. With strong order backlog and easing lockdown measures, Ong expects project-related revenue to stage a rebound in coming quarters.
“Recurring revenue segments should also resume growth at high single digits on a y-o-y basis with operations back to normal in 2QFY2021. We remain confident that Silverlake can achieve topline/core net profit growth of 5.3%/21.2% y-o-y in FY2021F,” he says.
As at 10.30am,shares in Silverlake Axis are trading flat at 26.5 cents.
