12 February 2014

Silverlake 1H2014 Result - FEB 2014

About Silverlake Axis:

Silverlake Axis Ltd (SAL) is a leading provider of digital economy solutions and services for major organisations in Banking, Insurance, Payments, Retail and Logistics industries. The Group's Silverlake Axis Software and Services Solutions are delivering operational excellence and enabling business transformations at over 100 organisations across Asia, including 40% of the largest banks in South East Asia. Under Axis Systems Holdings Limited, the Group was listed on the SGX-SESDAQ on 12 March 2003. It was renamed Silverlake Axis Ltd in 2006 following the acquisition of SAACIS, the Company that owns the Silverlake Integrated Banking Solution (SIBS) and the listing was transferred to the Mainboard of the Singapore Exchange on 22 June 2011.

Silverlake had released its latest report on 11 Feb 2014. Below is some of the snapshots taken from company's report:

Income Statement. Source: Company

EPS for 1H2014 is RM0.0498. So annualized EPS and PE would be 22x to 23x. If you look at EPS growth compared to corresponded period, the EPSG would be 17% (partly due to the dilution effect of new shares issue on during FY2013). So to me this company may have a rather expensive valuation right now. Gross profit margin stands at around 60%, marginally drop compared with corresponded period. Net profit margin is roughly 49%, a flat performance compared to last year.

Balance Sheet wise, non current assets value is RM249M, a 21% increase mainly due to Intangible Assets (additional cost in acquiring subsidiaries) and investment in associates. Current assets valued at RM495M, a 8% drop compared to last year, mainly due to decrease in cash and bank balances and receivables offset by increase in amounts due from customers. Total equity represents RM594M, a slight improvement compared to RM588M last year, mainly attributable to total dividend paid to shareholder of RM111M offset by increase in retained earnings.

Cash flow wise, Cash and bank balances decreased from RM362.4M as at 30 June 2013 to RM331.7 million as at 31 December 2013 mainly due to the cash outflow from investing activities of RM45.5million for the first payment for the acquisition of CVSB and the second tranche payment for the acquisition of 80% equity interest in Merimen Group and the cash outflow from financing activities of RM111.0M for payment of dividend to shareholders, which was partially offset by the net cash inflow from operating activities of RM129.4M.

The expected annualized ROE would be around 35% to 40%, and it is still a good figure. Below is the screenshot income statement review by company management:

The company remain positive on current business trend, seeing ample business opportunities to pursue new software projects and to add to the present order book of software implementation service contracts. Besides that, the company remains open to any acquisition opportunities to broaden the range of business and technology capabilities and enable the company to provide customers operating in multi-industries with solutions to excel in digital economy.

At current price of 87c, I would say it is not an undervalued counter, but a growth stock with high growth potential. It depends on your risk appetite to add this stock in your portfolio.

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