RHB Research report published on 27 Aug 2015 recommended a BUY:
FY15 was disappointing and we lower our FY16F earnings by 6.7%, to
account for higher administration expenses and lower licensing and
project sales; management is also refuting all allegations and is hiring
Deloitte to undertake an independent review on Silverlake and related
private entities. Sentiments aside and solely based on valuations we
think the current price levels look attractive and upgrade to BUY based
on a conservative 14x FY16F P/E TP of SGD0.58.
* Disappointing FY15 (Jun). FY15 revenue and NPAT grew by 3% and
14% YoY to MYR337m and MYR282.7m respectively. Revenue growth
was lower mainly due to the smaller hardware sales as compared to
FY14. However, mainly due an increase in administrative expense and a
MYR19.2m accounting gain on dilution of interest in an associate in
China following its IPO, recurring NPAT only grew by 7% YoY.
* Engaging Deloitte to undertake an independent review. Management
has refuted all adverse allegations in a short-seller’s report, stating that
the claims were baseless and without merit. Silverlake Axis (Silverlake)
also reinforced the fact that these related party acquisitions have
benefited the company with net profit, cash flow, DPS and market cap
growth. Management is also engaging Deloitte Singapore to undertake
an independent review of the allegations concerning the related party
transactions and Silverlake-related private entities as well as the
associated profit margins referred in the report.
* Silver opportunity – upgrade to BUY. The share price has collapsed
by >50% in the last few weeks and we think that – solely based on
fundamentals with sentiments aside – this is an opportunity to
accumulate Silverlake’s shares at an attractive level. We have already
conservatively cut our FY16/FY17 licensing and project services sales to
MYR220m due to a lack of new contracts, resulting in our recurring
NPAT to only grow by 5.2% in FY16. However, at the current price
levels, the stock is only trading at 11.1x FY16 P/E coupled with a
potential >8% yield. Silverlake’s core banking solutions offerings can be
verified as they are currently being used by first-tier Singaporean,
Malaysian and Indonesian banks. As such, we upgrade our call to BUY
based on a conservative 14x FY16F P/E which results in a TP of
SGD0.58.
