May 17, 2017

Silverlake Axis (SAL) booked a capital gain of MYR477.7m in 9MFY17 (Jun) for the full disposal of its intended allocation-forsale Global InfoTech Co Ltd (GIT) shares. Expect the proceeds to be utilised for acquisitions, share buybacks or special dividends likely to be spread out over FY17-18.

We may expect a slight recovery in the industry in 2018, where new contracts could potentially be secured. SAL is also well positioned to take advantage of the recovery when it happens, by constantly taking the initiative by upgrading its software offerings.

SAL is likely to focus on growing its insurance processing division, looking for potential acquisitions as it sees huge potential for expansion in this segment.

SAL said it was exploring options with its majority shareholder to acquire and consolidate its private entities, a move that would be positive in providing much transparency for investors seeking out SAL’s cost structure.

The group had previously announced small- to mid-sized contract wins in both Thailand and Vietnam, despite the challenging economy where banks are cutting costs and not spending on huge IT projects. The projects would be completed in 4QFY17, with the bulk of revenue recognition to be recognised in this coming quarter.

However, SAL would still likely face a big decline in these segments YoY due to the lack of new large-sized projects.

As a result, we lower our FY17F earnings by 6.5%, which results in our DCF-backed TP being cut to SGD0.65. Maintain BUY. –RHB

Silverlake Axis closed at: S$0.525