Silverlake

Silverlake: PhillipCapital reiterates call to ACCUMULATE on the leading provider of core banking solutions for financial institutions; lifts TP to $1.32. The house believes Silverlake will be the key beneficiary of ongoing M&A of OCBC-WHB and CIMB-RHB-MBSB. The acquirers, OCBC and CIMB, use Silverlake’s products for their core banking system and regional core banking platform respectively. Hence if the M&A deals go through, it would almost certainly lead to WHB, RHB and MBSB’s adoption of Silverlake’s banking system. The company has excellent track record to date, having successfully implemented 150 projects with zero failure and zero switch-outs in its 25 years of existence. The company derives ~20% of revenue from license expansions and upgrades and 45% of revenue from high-margin recurring maintenance services. Silverlake’s market leading position is evident in Asia, where IT spending is expected to grow at 7% CAGR leading up to 2017. It is targeting Asian banks with old in-house systems that restrict their expansion of core banking functions. According to its management, Silverlake’s proprietary software developed over 25 years has an estimated worth of US$1b, and unlike its peers has expensed most of its R&D costs. This gives an enviable boost to its balance sheet