Silverlake Axis (SILV SP) HOLD
1QFY16: In Line But Focus is Elsewhere, Namely The Deloitte Report. Maintain HOLD
Analyst: Andrew Chow Tel: (65) 6590 6633
| Company | Share price(S$) | Recommendation | Our Target Price(S$) | Within Expectation (Y/N) | 1QFY16 net profit (RMm) | 1QFY16 yoy | Highlights of Results |
| SILV | 0.665 | HOLD | 0.66 | Y | 68.6 | +15% | See comments below |
1QFY16 results highlights
- No surprises. The group's 1QFY16 net profit of RM68.6m (+15% yoy) was in line with our expectations, accounting for 23% of our full year estimates. The group enjoyed an unrealised foreign exchange gain of RM13.5m in 1QFY16 owing to the RM weakness against the SGD and USD.
- Healthy revenue growth. 1QFY16 revenue grew a healthy 13% yoy, underpinned by a 23% yoy growth in its maintenance segment. The only negative was a 42% decline in software licensing but this segment only accounts for less than 20% of group revenue.
- Lower margins due to different revenue mix. The group's gross margin declined 4.5ppt to 60% as a result of a shift in revenue mix towards maintenance, which carries a lower gross margin (of circa 60%) compared to licensing (90% gross margin).
- Maintaining earnings pending analyst briefing on Friday. No change in our earnings estimates pending a briefing tomorrow at 9am
- Still awaiting the Deloitte report and its implications. The in line results are not likely to excite the market as investors eagerly await the release of the Deloitte report. Investors will be waiting to see the recommendations of Deloitte and whether Silverlake management will take steps to address investor concerns over its corporate structure that involves a significant amount of related party transactions. Until there are more details and developments, we maintain our HOLD rating and a DCF-derived target price of S$0.66/share.
Regards
Andrew Chow, CFA
UOB Kay Hian Research
DID: +65-6590 6633
Email: andrewchow@uobkayhian.com
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