SINGAPORE (Aug 26): Silverlake Axis recently secured eight upgrades and enhancement projects totalling about RM40 million ($13 million) from existing customers. And market watchers are bullish on the group’s potential to be a beneficiary of the fintech wave.
In its latest 4Q19 earnings, Silverlake saw its earnings surge 86% to RM67.5 million, compared to RM36.2 million a year ago. This brings its FY19 earnings to RM245.6 million, 83% higher than the previous year.
The increase in 4Q19 earnings was mainly due to a 30% y-o-y increase in revenue to RM189.3 million, with the group’s project-related revenue totalling RM69.2 million in 4Q19 – some 183% higher than RM24.4 million.
The improvements were mainly due to higher revenues recorded from the progressive delivery of two Malaysian core banking projects, new retail automation contracts secured in Hong Kong and Malaysia, and the deployment of channel innovations for two financial institutions in Malaysia.
See: Silverlake Axis posts 86% increase in 4Q earnings to $22.3 mil on higher sales, other income
DBS Group Research analyst Ling Lee Keng believes the group is a beneficiary of the rising fintech wave.
Similarly, Silverlake's management has indicated it expects to benefit from the rise in digital initiatives among banks, as well as further consolidation of the banking industry in developing countries.
n an Aug 26 report, Ling says: “Orderbook backlog of at least RM300 million would continue to keep the group busy for the next few quarters. Beyond that, we are expecting the group to win more orders. Despite the global headwinds, momentum has not slowed down.”
The research house has kept its “buy” call on Silverlake Axis with a lower target price of 60 cents, from 63 cents previously.
On the other hand, CGS-CIMB Research is more bearish, citing an absence of major order wins in recent months.
Analyst Ong Khang Chuen expects the group’s project-related revenue growth to soften beginning in 2Q20, and forecast FY20 revenue growth to decelerate to 5.5% y-o-y.
The brokerage is downgrading the stock to “hold” from “buy” and lowering its target price by 5 cents to 53 cents.
“We estimate the current orderbook backlog of about RM260 million to be up predominantly of projects with smaller scope (and hence, lower margins), and expect the unfavourable revenue mix to result in gross profit margin contraction in FY20 to 60.2%,” Ong says in an Aug 24 report.
However, Ong adds that there could be a silver lining, as new digital banks are also potential targets for new projects. "We gather that Silverlake Axis has been approached to explore possible software solutions to support new digital bank operations,” he says.
As at 4pm, shares in Silverlake Axis are trading 1 cent lower at 50 cents, or 6.47 times FY20 book with a dividend yield of 3.16%, according to CGS-CIMB’s estimates.
