Analysts at CGS-CIMB Research and PhillipCapital Research are maintaining their “add” and “buy” calls on Silverlake Axis 5CP with lower target prices of 36 cents following the company’s 2QFY2024 ended December results release.
PhillipCapital analyst Glen Thumm notes that the quality of Silverlake’s earnings is improving, meeting his estimates. He also highlights that the company’s project pipeline is healthy at RM1.4 billion ($394 million), with contract wins of RM114 million in 2QFY2024 and an order backlog of RM790 million going into the rest of FY2024.
“Furthermore, Silverlake expects revenue from the multi-million 10-year core and channels digital banking Mobius deal with a client in Malaysia to come in FY2024. Silverlake is beginning to close more deals and is witnessing an uptick in inquiries about its financial services market solutions and capabilities,” he adds.
That said, CGS-CIMB analyst Andrea Choong thinks the company’s overall gross profit margin (GPM) may start trending towards a new lower run rate as contract wins for its cloud-based core banking system (CBS) offering Mobius start outpacing those of its traditional CBS Silverlake Axis Integrated Banking Solution (SIBS).
To this end, Thumm also points out that Silverlake’s non-recurring revenue — comprising software licencing, software project services and sale of system software and hardware products — had fallen 4% y-o-y during the quarter. Software licencing revenue fell 23% y-o-y as there was a shift towards cloud-based systems such as Mobius and Symmetri, which do not have as much initial revenue recognition as compared to legacy systems like its SIBS.
The decline was slightly offset by software project services revenue increasing 14% y-o-y as a result of new revenue flow from strong revenue flow of services contracts closed this year and the prior year, with the projects proceeding as planned, Thumm adds.
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Choong has cut her FY2024-FY2026 earnings estimates by about 3.5% as the analyst reduces her assumptions on Silverlake’s GPM. She believes the company’s earnings growth in FY2024-FY2026 will still be fuelled by banks upgrading their core banking systems.
Meanwhile, Thumm expects Mobius and recovery in bank IT spending after two cautious pandemic years to be the key growth drivers for the company.
As at 11.35am, shares in Silverlake are trading at an unchanged 24.5 cents.
