Brokers’ take: Analysts stay positive on Silverlake Axis on steady contract win momentum

ANALYSTS maintained a positive outlook on Silverlake Axis as they expect its steady contract win momentum will continue into Q4 2022.

This comes as Silverlake on Friday (May 13) posted a core net profit of RM40.1 million (S$12.7 million) for its third quarter ended Mar 31, which was up 3 per cent on year but down 33 per cent on quarter.

CGS-CIMB maintained its “add” call on the counter, but lowered its target price to S$0.40 from S$0.41.

The target price implies a potential upside of 23.1 per cent from Silverlake’s share price. The counter was trading at S$0.325 as at the midday break on Tuesday, up S$0.005 or 1.6 per cent.

Noting that the fintech company’s Q3 results were below expectations, analyst Andrea Choong cut her earnings per share estimates by about 2 per cent each for FY2022 to FY2024 to factor in higher operational expenditure (opex) costs.

She expects opex will be higher from FY2022 onwards amid elevated headcount costs and business expenses.

However, Choong noted that the company’s order win momentum continued into Q3, with order wins at RM395 million year to date, “markedly higher” than the RM326 million recorded in FY2021.

“We see scope for continued order win momentum as transaction volume in the region picks up, spurring appetite for digital solutions amongst banks,” said Choong.

Meanwhile, DBS Group Research maintained its “buy” call on Silverlake and raised the counter’s target price to S$0.46 from S$0.39.

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The new target price is pegged to 17 times the brokerage’s estimates for FY2023 earnings, and implies a potential upside of 41.5 per cent.

Analyst Ling Lee Keng raised her net profit estimates by 11 per cent in FY2022 and 18 per cent in FY2023 following the strong contract wins momentum, adding that she remains optimistic on Silverlake’s business given its position as a market leader in the core banking solutions segment.

“Digitalisation has now become a necessity instead of something that’s ‘good to have’,” Ling said.

According to the analyst, Silverlake can expect more contract wins in the future with the rising interest rate environment and the eventual recovery of the global economy.

Ling expects revenue from Silverlake’s cloud-based business will continue to grow, with its new open banking platform Mobius set to see a higher adoption rate, while its existing core banking system should remain as a key contributor due to its stability.