PhillipCapital analyst Glenn Thum is recommending Silverlake Axis 5CP ’ (SAL) shareholders accept the company’s cash offer of 36 cents. SAL announced its intention to go private on Aug 26.
The offer of 36 cents per share represents some 2.7 times of SAL’s net asset value (NAV) per share of 13.5 cents as of June 30, Thum points out in his Aug 29 report. It is also 20% higher than the company’s last-closed price of 30 cents on Aug 23.
Alternatively, shareholders may opt for a combination of 30 cents per share in cash and one new redeemable preference share in the capital of the offeror, E2I. E2I was incorporated on July 10 to undertake the offer. It is wholly-owned by SAL’s controlling shareholder, Zezz FundQ, and run by Goh Peng Ooi, SAL’s group executive chairman and founder. The new redeemable preference share will not be listed on any securities exchange and does not carry any voting or dividend rights. They will mandatorily be redeemed five years after their issuance at 18 cents apiece, representing a five-year compound annual growth rate (CAGR) of 24.6%.
As such, Thum recommends investors accept SAL’s cash offer.
On Aug 23, SAL reported earnings of RM103.3 million ($31.1 million) for the FY2024 ended June 30, 39% lower y-o-y. The company’s 4QFY2024 earnings fell by 79% y-o-y to RM14.7 million due to lower gross profit and higher costs.
Based on Thum’s estimates, SAL’s 4QFY2024 results were below his estimates. The company’s revenue and earnings for the full year stood at 97% and 70% of his full-year estimates respectively.
“Revenue [for the FY2024] was flat as the increase in recurring revenue (maintenance and enhancement services, insurance ecosystem transactions and services, and retail transactions processing revenue) was offset by a drop in non-recurring revenue (software licensing, software project services, and sale of system software and hardware products),” he writes.
“[Full year] gross profit fell 9% y-o-y as there was a change in revenue mix and a fall in higher margin revenue streams like software licensing. Higher costs of sales and operating expenses (opex) from streamlining business operations led to a decline in patmi,” he adds.
As at 11.13am, shares in SAL are trading flat at 37 cents.
