Tuesday, December 21, 2010

Silverlake Axis Part 1

This is a write-up on this mini Malaysian company listed on the SGX called Silverlake Axis.
This write-up is not entirely original from me; it is a compilation of write-ups from a certain blog, my broker, Kim Eng's research and Nick's excel sheet calculations (thank you Nick!).


The company describes itself on the website: "Silverlake Axis is a leading provider of end-to-end universal integrated banking solution. The Group's award winning Silverlake Axis Integrated Banking Solutions are implemented at over 75 customer sites in Asia including 40% of the Top 20 Largest Banks in South East Asia."

Basically, Silverlake is a Malaysian software solutions provider specialising in the financial industry. Silverlake develops the software for banks to interface and integrate their front-end retail-banking services with the back-end, known as “SIBS” or Silverlake Intergrated banking System. SIBS is a centralized software system for managing accounts and products such as deposits, payments and loans for banks. Specifically, SIBS provides solutions in areas such as deposits, loans, remittances
and payments, electronic banking, credit cards and trade finance. Silverlake Axis owns the intellectual property tights to SIBS.

Some of Silverlake's more famous clients include:
Hong Leong Bank, OCBC Bank, United Overseas Bank, Malayan Banking Bhd, Malaysia.

Silverlake's Financials

Silverlake has grown it's revenue from FY2003 consistently year on year, with the exception of a substantial decline in FY2009, likely due to the financial crisis that swept across the world.

It's ROE is pretty decent, and it is in net cash position (1.29 RM sen per share). A software company by nature, it has a business model that produces a recurring cash flow with low recurring capital expenditure.

From Kim Eng's report:  In March 2010, Silverlake acquired two companies from its major shareholder. This promises a more recurring income base than its traditional banking solutions licensing business that has been hard hit by the global financial crisis. Structured Services involves software maintenance, management and change request services for clients that have previously implemented SIBS, while QR Group provides retail systems solutions and services. Both businesses are highly profitable with net margins in excess of 40%.

The dividend payout has also been quite decent. At 1.7cts for FY2010, it would be a 5% dividend yield at a price of 34c (I bought at 33c).

As the economy recovers, and along with it the financial sectors, Silverlake would likely benefit.

Silverlake's Segmental Breakdown
Management intends to grow its recurring income base to provide stability to its financial performance.

The cash it generates, plus the contracts it secures from Asian banks, suggests that the intangible assets associated with its Silverlake software are significant. This is somewhat expected of a strong software company, whose main intangibles arises from licenses of it's softwares.

From my broker's writeup: The purchase of Silverlake Solutions will provide steady cash flow via maintenance contracts, compared with the lumpy contracts it currently derives from the SIBS software. As the MD, Mr Raymong Kwong, put it: “In FY2011, up to 50% of revenue will be recurring”. This is evident in its Q1 FY2010 results, where out of the RM 56.15 million in revenue, RM 32.72 million was generated from "Maintenance and enhancement", or about 58.3% is recurring.

Shall end Part 1 here since it's already 2.22am.


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