Silverlake Axis Ltd. - Why not just disclose the order book?

19/2/2013 – Silverlake Axis says it has a sizeable order book of software and implementation services contracts - but it didn't disclose details.

It says it will continue to work on these contracts in H2 FY13.

Silverlake’s recurrent income from maintenance and enhancement services will continue to grow with the completion of on-going software projects.

It says it will also grow due to the addition of new project enhancement contracts.

The company just announced earnings for Q2 FY13:

Revenue: -8% to RM100.6 mln
Gross profit: +1% to RM61.2 mln
Gross margin: 60.8% vs 55.4%
Profit from associates: +21% to RM1.8 mln
Profit: +10% to RM49.3 mln
Cash flow from operations: RM34.3 mln vs RM50.2 mln
Dividend: 0.7 cents vs 0.4 cents

Group’s revenue fell but profit grew as margins improved because a greater contribution came from software licensing and maintenance services.

CIMB Research maintained its OUTPERFORM rating with a target price of S$0.60, and OSK DMG research also maintained its BUY rating with a target price of S$0.58.

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies which global investors need answers to.

Question

1. Why does it want us to guess its order book?

During the quarter, Silverlake Axis secured three extension contracts worth RM135 mln from existing customers.

While not disclosed, there are also other smaller post-development contracts which the group is undertaking beyond the original scope of work.

As such, OSK DMG Research estimates that the group’s project backlog is about RM400 mln, close to two times that of FY12’s project revenue.

Therefore it makes us wonder whether we have to keep on guessing its order book or depend on brokers for their estimates.

Question

2. Is the higher dividend here to stay?

In view of the robust operating cash flows and growing net cash balance, the group doubled its total dividend payout in H2.

OSK DMG Research now expects the group to sustain this payout ratio and raised its dividend yield forecasts to 4.9% for FY13 and 5.3% for FY14.

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).

Sources & further information

Sources

Statutory disclosure
Press release
CIMB Research Report
OSK Research Report


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