Brokers’ take: Bank earnings growth to support demand for Silverlake Axis offerings, says CGS-CIMB

STEADY margin upside from the US Federal Reserve rate hikes will likely boost banks’ earnings growth in FY2023, which will in turn support continued investment in the Silverlake Axis ’ solutions, CGS-CIMB said on Tuesday (Aug 30).

Silverlake Axis, which provides digitalisation and core banking solutions, will also benefit from rising competition from digital banks, which will drive spending on core banking systems investments or upgrades.

The research team has reiterated its “add” call and raised its target price on Silverlake Axis to S$0.42 from S$0.40, implying a potential upside of 13.5 per cent from the counter midday trading price of S$0.37 on Tuesday. Silverlake Axis was trading 2.8 per cent or S$0.01 higher at the time.

On Monday, the company posted a 30 per cent rise in profit-after-tax to RM47.9 million (S$14.9 million) for the fourth quarter ended June 30, 2022, in line with higher revenue.

The results were above consensus expectations but fell short of CGS-CIMB’s forecasts by 14 per cent, the research team said in a report.

Silverlake Axis’ revenue rose 16 per cent to RM205.2 million, on the back of higher contributions from project-related revenue segments and a resurgence in insurance ecosystem transactions and services.

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The group also recorded contract wins totalling over RM500 million in FY2022. It is also closing the full year with RM1.9 billion worth of transaction value that it is “actively pursuing”.

The order wins provide a firm base for steady earnings growth in FY2023, said CGS-CIMB analyst Andrea Choong. Notably, one of these deals will integrate 4 other markets (Malaysia, Indonesia, Thailand and Vietnam) into Silverlake Axis’ platform.

Choong noted that interest from Thailand, especially with the delivery of its first Mobius deal there, has been strong. She expects this to drive order win momentum but tone down FY2023-24 EPS growth by about 3-4 per cent, mainly to factor in higher taxes.