Silverlake Axis stresses growth as current priority; does not rule out privatisation

Under the terms of the offer, the company offered to buy back up to 242.4 million shares, representing some 9.06% of its total issued share base. At the time of the offer on March 11, this price was 17.86% higher than its last traded price of 28 cents.

In its offer document, Silverlake explained that the share buybacks would increase the company’s earnings per share (EPS) and pro­vide shareholders with an opportunity to sell their shares at a premium over prevailing mar­ket prices without incurring transaction costs.

In a recent interview with The Edge Singa­pore, Silverlake group managing director An­drew Tan says there was no “specific initiative” that triggered the share buyback, although he acknowledges that some shareholders were “quite frustrated” with how Silverlake’s share price had remained very much unchanged over the last few years.

As such, the equal access offer was the com­pany’s way of returning profits to its share­holders by offering them a share buyback at a price that is far superior compared to the market price.

See also: Microsoft warns other firms of Russian-sponsored group in email hacking

One notable point of the share buyback was an announcement that Zezz FundQ, an entity wholly owned by Silverlake founder and chair­man Goh Peng Ooi, would not participate in the offer. As such, the minority shareholders were able to accept the offer for some 28.84% of the shares they own. At the time of the of­fer, Goh, via Zezz FundQ, held 68.58% of the company but has recently increased his stake to 74.2% as of June 21.

With such a commanding stake in the com­pany, is it Goh’s intention to take the compa­ny private?

While shareholdings may have shifted slightly, according to the company’s FY2021 ended June 2021 annual report, Goh is Sil­verlake’s only substantial shareholder, with the next largest shareholder being shares held under Citibank Nominees Singapore at a stake of 5.37%.

See also: Microsoft, Amazon and Google are kingmakers for AI start-ups

Tan explains that Goh has always been hold­ing around that level of shares in the compa­ny since it was listed. “So, it’s not a deliber­ate move to say that we’re going to privatise or not privatise.”

However, he does not rule out privatisation as a possibility, saying that Silverlake’s “top­most concern” is to create value for its share­holders. “If this means we should explore priva­tisation, we will. But right now, we feel that there’s so much that we can do as a company.”

Tan says that there are more immediate priorities for Silverlake. For example, grow­ing its insurtech (insurance tech) arm Fermi­on to a RM500 million ($156 million) entity from a RM100 million entity. The company is also trying to gain a larger market acceptance for its Mobius banking solution. Tan has also set his sights on bringing the company’s total revenue towards the RM1 billion mark, around 25% more than the topline achieved as of the most recent full year. “We have the resources, we have the skills, we have the experience to get there,” he maintains.

Promising growth track

In a sense, Silverlake has maintained a steady track record to achieve what it wants to be. In an earlier interview in 2021, Tan said that since Silverlake’s inception 30 years ago, the compa­ny has never experienced a full-year loss. “Of course, some years, profits are up and profits are down, but we have never made a loss.”

While that holds, the company did go through a rough patch in FY2020 and FY2021 during the pandemic. Revenue and earnings dropped by 3% and 25% y-o-y respectively in FY2020, and another 6% and 23% in FY2021 compared to FY2020.

Tan says during that time, the company kept its focus, on planning and getting ready for the needs of the post-pandemic market. One such example, Tan says, is the company’s “re­lentless effort” to promote its Mobius banking solution. Mobius is Silverlake’s newest bank­ing platform that provides “best practice pro­cessing” for deposits, conventional lending, Islamic finance, trade finance and payments.

To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section

According to Tan, Mobius is a “cloud-na­tive” product, which means the product is built around inherent functions and features that are available in the cloud, from systems backup and recovery to security management.

“The whole purpose of Mobius and be­ing cloud-native is that at the end of the day, this product can be readily configured for fast transformation in the digital banking world, and being able to allow banks to very quickly configure products, configure solutions. [This allows them] to collaborate with emerging fin­tech companies in the fintech ecosystem.”

For its most recent FY2022, Silverlake’s earn­ings saw a 27% y-o-y increase to RM182.2 mil­lion from RM143.1 million. Revenue reached a record RM736.5 million, up 18% y-o-y from FY2021’s figure of RM626.1 million and exceed­ing the previous high achieved in FY2019 by 8%.

From Tan’s perspective, the FY2022 num­bers are “the culmination of our work in piv­oting the company’s strategy during the two pandemic years” and how the company can “hit all the right spots”.

For one, revenue for Silverlake’s software project services sub-segment, which Mobius falls under, increased 39% y-o-y to RM90.9 million in FY2022, mainly due to the ongoing implementation of two new Mobius contracts. This, along with progressive revenue contrib­uted from other ongoing Mobius projects, ac­counted for 37% of the total revenue for the project services revenue.

But the more important thing for Silverlake is the ability to cater to not only customers who want the features of Mobius, but also to de­liver “a proven product” to its customers who are more comfortable with its legacy solutions.

Some customers, Tan says, want a prod­uct that has been proven over a large base of customers, and Silverlake’s ability to deliver those solutions in over 80 countries has led to growth even in this segment.

In February, Silverlake moved into the in­surtech space by setting up Fermion, a com­pany that builds insurance ecosystems to meet the needs of the banking, financial services and insurance sectors.

Fermion identifies and creates ways for businesses to integrate insurance ecosystems into customer journeys, the company said in an announcement.

Its solutions include a software-as-a-service, end-to-end collaborative exchange platform extending from sales to claims. The solutions can also generate analytics with artificial intel­ligence for every property and casualty (P&C) product, as well as digital customer engage­ment technology solutions covering life, health and long-term savings.

In its FY2022 financial statement, Silver­lake says this is a “concerted strategy” to get the company into providing end-to-end insur­ance processing, solutions and platforms, be­yond just motor insurance claims, which it is historically strong in the region.

Tan claims that Silverlake is particularly strong in Singapore and Malaysia, where “every single property and casualty insurance com­pany are our client, they use our platform to process motor claims.”

Silverlake has also invested in two insurtech companies which will strongly complement Fermion and extend the scope of its coverage in the insurance insurtech space.

Tan is keeping a lookout for more invest­ments and acquisitions that can help grow its scope and offerings in the insurtech industry, adding that the goal is to diversify into prop­erty & casualty, health & wellness and travel insurance. This will be for both convention­al and Islamic, and to make Fermion a lead­ing insurance ecosystem builder in the region.

Shareholders, analysts share positive sentiments

If anything, shareholders and analysts have both seemed to see a bright outlook for Sil­verlake. As of Sept 27, shares of the company closed at 34.5 cents, 18.97% higher ytd and currently valuing the company at $917 million. A notable jump was in June, when the share price surged from 30 cents on June 6 to go on a bull run to a peak of 44 cents on July 14.

On Aug 30, analysts from CGS-CIMB, DBS Group Research and PhillipCapital maintained their “buy” ratings for Silverlake Axis with in­creased respective target prices of 42 cents, 48 cents and 49 cents. This was up from their previous figures of 40 cents, 46 cents and 39 cents previously.

CGS-CIMB’s Andrea Choong writes that Sil­verlake, with its 4QFY2022 profit after tax of $48 million, up 30% y-o-y, is gaining “steady momentum”. The earnings for the quarter were above consensus but below her expectations due to a weaker gross profit margin of 50% compared to a 60% run-rate.

DBS’s Ling Lee Keng points out that “license and project revenues, which were challenging over the last two years, exhibited a strong re­covery, as evidenced from the FY2022 results. The banking business continues to be the key contributor.”

“With a rising interest rate environment, which is beneficial to banks, coupled with the gradual recovery of the global economy, we can expect more contract wins going for­ward,” she adds.

Meanwhile, Glenn Thum of PhillipCapital says that “stable”, recurring revenue growth has added to the company’s momentum. Point­ing at the insurance segment, Thum says eco­system transactions and services revenue also increased by 15% y-o-y as vehicle claims pro­cessing activities recovered, while the addition of processing activities from new Hong Kong customers upon completion of system integra­tion also contributed positively.

CGS-CIMB’s Choong notes that Silverlake’s deal pipeline was also solid at RM1.9 billion at the end of 4QFY2022, with around RM250 million in deals in the final stages of negoti­ation and marked with a “high probability of closure”.

She adds the secured backlog going into FY2023 stands at around RM570 million, or around 77% of FY2022 revenues, which pro­vides a firm base for steady earnings growth in FY2023.

DBS’s Ling believes that Mobius could be a “game-changer”, opening a door to new cus­tomers. It is expected to see a high adoption rate with the existing core banking system pro­viding a stable base, she says.

She remains optimistic about Silverlake’s business given its market-leading position in the core banking solutions segment. Digitali­sation is now a necessity instead of something that’s “good to have”, Ling notes.