• Revenue  up  24%  y-y,  24%  q-q  at  RM125  million  from  higher  income  from software licensing and maintenance and enhancement services
• Net income up 23% y-y, 18% q-q at RM61 million, from higher tax expenses due to lower tax-exempt earnings for the quarter
• Maintain "Accumulate”, with unchanged TP of S$1.02

Silverlake  Axis  (SAL)  announced  its  2Q14  results  on  11  Feb  2014.  Growth  in software  licensing  was  contributed  by  a  major  ISIS  software  licensing  contract secured  during  the  quarter.  New  project  enhancements  projects  secured  in Singapore  and  Indonesia  contributed  to  the  strong  growth  in  maintenance  and enhancement services. EBITDA margin was higher at 55.9%, due to higher margin contribution from software licensing.

Net profits increased 23% y-y, 18% q-q from higher tax expense at RM8.2 million for the quarter. This is due to lesser tax -exempt earnings recognised compared to prior periods.  As briefed by the management, about 70% of the Maintenance and Enhancement services income is tax-exempt, benefiting from centralisation of its maintenance  business.  Software  licensing  revenue  is  subjected  to  a  low withholding tax rate of about 10%.

How we view this

We continue to remain positive on Silverlake Axis with excellent growth potential in  our  view.  Management  briefed  that  SAL  may  potentially  secure  a  major contract worth ~RM$300m from RHB bank to implement its core banking system. soon.  We understand that  shortlisted bidders  for the contract are down to only two players, with SAL as one of the two contenders. We believe the potential RHB deal should be in the final stage of evaluation and the outcome is expected  to be announced soon.

We also like Silverlake Axis for its current attractive dividend yield of > 4% as an interim dividend of 0.9 Scents per share was declared for the quarter.

Investment Action

We adjust our forecasts to reflect 2Q14 results. As current valuation remains high, we  maintain  our  "Accumulate"  rating  with  TP  of  S$1.02  while  noting  SAL's excellent growth potential.

Source: Phillip Securities Research - 13 Feb 2014