SINGAPORE (May 24): DBS Vickers Securities is maintaining “buy” on Silverlake Axis while raising its target price on the stock by 1 cent to $0.63, which is derived from the peer average of 21 times FY19F P/E based on the group’s FY Jun 20F earnings after assuming slightly higher gross margins.
This comes post the group’s latest release of its 3Q19 and 9M19 results, which saw key segments registering revenue growth with 9M19 revenue and net profit jumping 23% and 82%, respectively.
In a report last Wednesday, analyst Ling Lee Keng says she continues to like Silverlake for being a market leader in the core banking solutions space, where over 40% of the top 20 largest banks in the region that outsource their core banking solutions are customers of Silverlake.
She also highlights the group’s high recurring revenue and high margins, supported by a strong balance sheet with healthy net cash levels.
Going forward, Ling is expecting more order wins from Thailand, Indonesia and Vietnam on top of the group’s orderbook backlog of at least RM250 million ($82.3 million).
These would mainly come from cross-selling opportunities in the digital front, as financial institutions will require robust core banking systems in order to avoid being obsolete by the rising fintech trend, in her view.
She also views the stock as a beneficiary of the rising trend of mergers and acquisitions among financial institutions, especially in developing countries, as this creates a need to revamp and align their core systems.
“Despite the global headwinds, momentum has not slowed down. Silverlake is still seeing active flow of new business enquiries and requests for proposals from existing as well as potential customers,” says the analyst.
Shares in Silverlake last traded 0.98% lower at 50 cents prior to the midday trading break, or 6.7 times FY20F book value.
