• 2Q15 net profit up 18.3% y-y at RM71.6m despite flat revenue, benefiting from higher tax-exempt income earned.
• 1H15 revenue meet 42.9% of FY15e consensus, signalling revenue growth may slow down faster than expected.
• Valuations a tad rich with fwd PE trending well above peers’ average of 19.7x.
• Maintain REDUCE with target price of SGD1.16, implying 24.7x FY15e PE.

What is the news?

2Q15 results reported strong earnings growth as a result of higher margin activities, mainly from software licensing and maintenance and enhancement services.

2Q revenue declined 0.7% y-y due to lower revenue recognition in all segments apart from maintenance and enhancement services.

On a positive note, 1H15 revenue gained 6.4% y-y, benefiting from delivery of higher value software licensing contracts during 1Q15.

How do we view this?

The considerable slowdown in revenue growth may limit future earnings growth, underpinned by the lack of major sizeable order wins. FY15e revenue may also fall short of consensus target at RM561m. Silverlake continues to have a rich valuation in our view, trading at ~27.6x fwd P/E, above comparable peers’ average of 19.7x. Fwd P/E ratio is currently trending between 1 and 2 standard deviations above the 3Y historical mean.

Key upside risks:

Acquisition of Finzsoft Solutions may lead to strong growth opportunities in Australia and New Zealand.

Major order wins from banks and financial institutions in Asia Pacific region.

Investment Actions

We update our estimates to reflect 1H15 results. Maintain Reduce with TP of SGD1.16 in view of its rich valuation and considerable slowdown in revenue growth.

Source: Phillip Securities Research - 12 Feb 2015