• Adjusting for one-off expenses, Silverlake Axis's FY21 (Jul 2020 to Jun 2021) core net profit of RM167mil (+17% y-o-y) was above expectations at 111%/113% of our/consensus forecasts.
• Order win momentum was positive at RM100mil in 4Q — highest in past 3 quarters. FI’s investment appetite is returning — Mobius will be key driver.
• Reiterate ADD on Silverlake Axis, with a higher target price of S$0.37, still based on 16x CY22F P/E.

Silverlake Axis's 4QFY21: Earnings Recovery in Progress

• Adjusting for a one-off expense for the remeasurement of a put liability and derivative asset, Silverlake Axis (SGX:5CP)’s core net profit of RM61mil in 4QFY21 (+58% q-o-q, +175% y-o-y) was ahead, with FY21 core net profit of RM167mil at 111%/113% of our/Bloomberg consensus’ forecasts. Without the adjustment, FY21 net profit would be in line (-23% y-o-y) as 4Q revenues recovered across almost all operating segments.
• While full-year contributions from software licensing and project services were dampened by clients’ deferments of larger ticket deals to 2HFY21, recurring revenues from maintenance and enhancement services (MES, ~76% of total revenue) were a bright spot, rising 3% y-o-y in FY21. Gross profit margin remained sturdy at 60% in FY21 (FY20: 57%).
• Silverlake Axis declared a dividend of S$0.0052 per share in 4Q, implying a lower payout ratio of 28% in FY21 (FY20: 40%; FY19: 59%).

Management Positive on FY22F Outlook

• Management’s outlook for FY22F is rather lockdown measures globally, we see scope for a rebound in project-related segments (higher GPM) and continued MES momentum and forecast ~8-11% y-o-y topline growth in FY22-24F.

Mobius’s Value Proposition Is Compelling

• Mobius will likely remain Silverlake Axis’s key growth driver going forward. As the value order to ~RM1.45bn, with ~RM325mil of these in the final stages of negotiation.

Reiterate ADD on Silverlake Axis as Operational Headwinds Bottom Out

• Growth prospects are becoming clearer now as clients resume project negotiations with Silverlake Axis. As management hints at retaining capital for possible M&As, we lower our FY22-23F dividend estimates, at price of Silverlake Axis to S$0.37, still pegged to 16x CY22F P/E (~0.5 standard deviation below 10-year mean).
• Downside risks are execution risks in rolling out Mobius.

Source: CGS-CIMB Research - 27 Aug 2021