• 4Q14 revenue gained 25% y-y, from higher software licensing and maintenance and enhancement services. Fullyear revenue increased 26% y-y at RM500.7m, above our estimate by 2.8%.
• Fullyear gross margin was lower yoy at 61.3%, due to lower margins from certain projects and drag downs in 1 st and 3 rd fiscal quarters.
• Quarterly and fullyear net profits were higher at 24% y-y and 27% y-y respectively. FY14 earnings was at RM248.9m, above our estimate by 3.7%.
• Final dividends of 1.2 Scents per share declared, along with special dividends of 0.6 Scents.
• Maintain "Accumulate” with TP of S$1.320.

What is the news?

Growth in all segments apart from software project services contributed to strong FY14 revenue gain. Project services is guided to pick up on execution of software implementation projects secured for fiscal year 15. Management also guided for revenue to grow at mid-teens. Enhancement services is set to grow with more enhancement projects expected to come from Malaysia on software upgrades to be GST-compliant, following the Malaysian government’s announcement to introduce goods and services tax (GST) from Apr 2015. Insurance processing business is also expected to have strong growth, mainly from increase in general insurance and health claims processing activities in Indonesia. Current project backlog gained to about RM280m. Special dividends was declared to reward shareholders as a result of strong FY14 performance and high net cash balance.

How do we view this?

We remained positive on SAL on the back of favourable trends towards upgrading & modernising of core banking systems and regionalisation of banks in ASEAN. SAL would benefit from additional recurring maintenance revenue and future enhancement services with every successfully completed software implementation project. We also see SAL to gain from post-merger integration projects coming from OCBC-Wing Hang merger and possibly, merger between CIMB, RHB and MBSB (Refer to earlier report here).

Investment Action

We continue to like Silverlake Axis for its excellent growth potential, solid balance sheet and growing recurring revenue streams. We revised our FY15F estimates to reflect management’s guidance and maintained our "Accumulate" rating with a target price of S$1.320 (implied FY15F PE of 27.0x)

Source: Phillip Securities Research - 28 Aug 2014