• We think that financial institutions’ investment appetites for capex and tech spending are returning. Silverlake Axis is not constrained in project implementation due to MCO.
• Order win momentum should pick up as Silverlake Axis firms up its first Mobius deal. Silverlake Axis is also the core banking system (CBS) provider for some digital bank licence applicants in Malaysia.
• Reiterate ADD call on Silverlake Axis with a higher target price of S$0.35. We think that operational headwinds are bottoming out while core banking deals are on the horizon.

Return of Tech Investment Appetite Bodes Well for Silverlake Axis

• We think that Silverlake Axis (SGX:5CP) has been swept under the radar, having underperformed our expectations over the past few quarters as financial institutions hold back on capex and tech spending, impacting order win momentum. Having endured over a year of stop-and-go movement restriction orders, we think that tides are turning for Silverlake Axis as investment appetites from banks stage a comeback, having adapted to new normal operating conditions, further spurred by the onset of digital banks across the region.
• Notably, Silverlake Axis is the core banking system (CBS) provider for several digital bank licence applicants (of 29) in Malaysia.

Stamp of Credibility for Mobius as Silverlake Axis Firms Up First Deal

• The roll-out of Mobius, a cloud-based Thailand and Indonesia by beefing up its engagement teams, we think that Mobius’ pricing structure is a key client conversion tool as upfront capital outlay (for customers) are much lower (vs. traditional product model), with the rest of the billings spread out over coming years.
• We think that the stamp of credibility from Mobius’ first deal will be a key catalyst for further order wins, alongside Silverlake Axis’s efforts in converting clients of one of its products reaching end-of-life in 2023 onto this cloud-based platform.

Committed Revenue Stream Tracking Well to FY22F Estimates

• We expect Silverlake Axis to record a net software licencing order wins (highest margin product).

Reiterate ADD With a Higher Target Price of S$0.35 on Order Win Newsflow

• We think that operational headwinds (investment hesitancy by banks) are bottoming out the Movement Control Order (MCO) in Malaysia.
• We raise our target price for Silverlake Axis to S$0.35, pegged to 16x CY22F P/E (~0.25 standard deviation below long-term average), as we factor in stronger share price momentum from order win newsflow.
• Greater adoption of Silverlake Axis’s core banking systems is an upside catalyst.
• Downside risks include execution risks in rolling out Mobius.

Source: CGS-CIMB Research - 9 Jul 2021