Silverlake Axis Ltd - Will it list its Chinese associate?

3/9/2013 – Brokers are bullish on Silverlake Axis due to its attractive dividend yield, as free cash flow continues to strengthen.

OSK DMG Research reiterated its BUY call with a target price of S$0.89 as it expects profit to grow 16% over the next two years.

This because it recently acquired a mobile and internet banking software solutions provider, Cyber Village.

CIMB Research maintained its OUTPERFORM rating with a target price of S$0.86.

It says the FY13 dividend payout was 86% of profit, with the company remaining in a net cash position.

Hence, it expects the FY14-FY16 payout to be 70%.

The group expects its current order book of software implementation service contracts will be implemented in FY14 and FY15.

In addition, the substantial recurrent income from maintenance and enhancement services is expected to continue growing in FY14 with the completion of new software projects and enhancement contracts in the order book.

The company announced these earnings for FY13 on August 26:

Revenue: Flat at RM398.6 mln
Profit: +21% to RM196 mln
Cash flow from operations: RM184 mln vs RM138.3 mln
Dividend: 3.1 S cents per share vs 1.9 S cents per share

The group delivered major software licensing contracts and registered a substantial increase of 89% in software licensing revenue.

In addition, recurring revenue from maintenance and enhancement services continued to expand with new maintenance and enhancement contracts following the completion of software implementation service contracts.

The group also reported new contribution from insurance processing generated by the Merimen Group.

However, on the downside, Silverlake Axis's FY13 revenue came in flat because of an 80% decline in hardware sales, as well as the fall in contribution of software project services.

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Question

1. Will it list its Chinese associate?

In FY13, Silverlake announced three new contracts and one contract expansion totalling RM135 mln.

Another two were also announced but their value were not disclosed.

CIMB Research says recognition of these contracts should boost its FY14 and FY15 results.

Apart from substantial order wins and acquisitions, another potential catalyst for its share price is possibly a listing of its Chinese associate Global InfoTech Co Ltd at attractive valuations.

The group holds 27% in the company as per the FY12 annual report.

Question

2. How much will the contract win from Bank Rakyat boost margins?

In July, its recently acquired Cyber Village Sdn Bhd (CVSB) announced a contract from Bank Rakyat, the biggest Islamic cooperative bank in Malaysia, to implement a new Internet banking system.

Under the contract, CVSB will supply, install, integrate, test, implement and commission hardware, software and services for Bank Rakyat's new Internet banking system.

In addition, CVSB will provide maintenance services for five years.

This leads to another question:

(Total 5 questions)

We have sent these questions to the company to invite them for an on-camera interview, and/or seek their written response.

Sofar, we have not had a reply (which is why you are seeing this message).

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