Silverlake Axis

Silverlake Axis: PhillipCapital initiated on the counter with a Accumulate rating with $1.02 TP. House cites the existing project backlog of ~RM300m (1.5x of its project-based FY13 revenue) provides good visibility for FY14E earnings. With each new license sales of its software solutions, Silverlake Axis would grow its base of recurring Maintenance and Enhancement Services income, estimated at 6-8% of new project contract wins generated on a recurring basis. Silverlake Axis competes with other internationally well-known core banking system vendors, such as Temenos, Oracle, Infosys, FIS and Tata Consultancy Services (TCS). However, the company boasts far better EBITDA and net profit margins above its peers, a testament to its excellent business model. Silverlake generates a healthy stream of free cash flow, with minimal debt (Debt ratio: 3% as of 1QFY14). Shareholders are being rewarded with high dividend payout of 66% (3Y average). With a net cash balance of RM373m and strong earnings growth ahead, Silverlake is well positioned for dividend growth, currently offering attractive dividend yield of about 4%. The group's expansion plan includes a strategic move to offer multi-industry solutions to enterprises with financial, logistics and retail business, resulting in an expansion of its customer base, leading to increasing business opportunities for the company.