Silverlake Axis

Silverlake Axis: 1QFY15 net profit rose 17% to RM59.7m, making only 21% of full year street estimates. Revenue increased 15% to RM116.3m, mainly from software licensing (RM38m, +84%) and maintenance and enhancement services (RM56m, +22%), offset by software project services (RM12.6m, -43%) on lower progressive income recognized from ongoing projects, and sale of software and hardware products (RM0.8m, -78%), from absence of major hardware sales. Due to favorable mix, gross margin jumped 7ppt to 65%. Meanwhile, bottom line was aided by a 164% increase share of associate’s profits to RM2m from higher contribution of Global InfoTech. The ongoing consolidation amongst the SE Asian banks (eg. OCBC-Wing Hang, and potentially CIMB-RHB) is expected to be a major positive catalyst, as both OCBC and CIMB are existing clients of Silverlake. Moreover, increasing regulatory requirements in the financial also presents opportunities for enhancement revenue as financial institutions beef up its software capabilities to comply with regulatory requirements. Silverlake Axis is trading at ~31.7x annualized 1QFY15 P/E Interim DPS of 0.8¢ unchanged