• Revenue up 27% y-y, 9% q-q at RM136 million, mainly from higher sales of software and hardware products as well as maintenance and enhancement services.
• Net income up 33% y-y, 4% q-q at RM63 million, with superior net margin at 46%.
• Maintain "Accumulate” with revised TP of S$0.965, and > 4% dividend yield.

Silverlake Axis (SILV) announced its 3Q14 results on 6 May 2014. Net profit grew by 33%y-y to RM63m for the quarter, driven by growth in maintenance and enhancement services as well as sales of software and hardware products. Sales benefited from 2 large orders for hardware products delivered. Maintenance and enhancement services continue to grow steadily with new project enhancement contracts secured in Singapore and Thailand.

The increase in profit was also contributed by higher software licensing and new recurring revenue stream from insurance processing by Merimen Group (acquired in FY13), offset by a drop in project services due to fewer project implementation contracts in progress in 3Q14. Project services are expected to pick up with the commencement of implementation project of CIMB’s 1Platform in Indonesia beginning May 2014.

Current project backlog maintained at about RM250m, helped by enhancement projects from existing customers running SIBS. Management shared on the availability of growth opportunities in core banking and payment systems enhancements from existing customers and potentially in health care services sector, in areas relating to insurance and claims processing.

An interim dividend of 1 Scents per share was proposed, bringing the total FY14 interim dividends to 2.7 Scents, 35% higher over the previous year.

How do we view this

We continue to be positive on SILV with excellent growth potential in our view. Perceived downside risks would include absence of new customer acquisition and lack of major contract wins to support current growth. However, SILV would still continue to enjoy growth from its maintenance and enhancement services.

Investment Action

We revised our DCF valuation with a more achievable projected growth rate, maintaining "Accumulate" rating with revised TP of S$0.965 (23.5x fwd PE). We continue to like Silverlake Axis for its investment merits, which include its solid net cash position and increasing recurring revenue stream (50% of TTM revenue).

Source: Phillip Securities Research - 8 May 2014