5 Reasons to Buy Silverlake Axis Shares Despite Earnings Miss

August 28, 2023

Malaysia-based technology firm Silverlake Axis Ltd (SGX: 5CP) – listed in Singapore – specialises in software services for the financial sector. The company has just reported its Q4 FY2023 and FY2023 earnings.

Silverlake Axis reported a decline of 7% in earnings to RM169.6 million in FY2023 from its earnings of RM182.2 million in the preceding fiscal year.

Despite the earnings miss, here are five compelling reasons to consider adding Silverlake into your investment portfolio.

1. Recurring revenue continues to grow

One of the key takeaways from Silverlake’s financial performance in FY2023 was the resilience of its recurring business.

Recurring revenue grew 5% year-on-year (yoy) to RM 569.4 million (S$166.4 million) and accounted for approximately 70% of the Group’s total revenue in FY2023.

The total recurring revenue includes the maintenance and enhancement services, insurance ecosystem transactions and services, as well as retail transactions processing.

With strong recurring revenue, this helps to give better earnings visibility to investors.

2. Weakness in earnings due to forex and taxes

In Q4 FY2023 earnings, Silverlake reported an increase of 8% quarter-on-quarter (qoq) in its core net profit but reported a dip of 24% as compared to a year ago.

The numbers failed to meet market expectations by 34%.

This was mainly due to the foreign exchange (forex) losses and unfavourable fair value adjustments.

Moreover, a spike in taxes during FY2023, amid the absence of government concessions, also played a role.

3. Robust order wins and positive outlook

Silverlake’s performance in contract acquisitions is worth noting.

In Q4 FY2023 alone, the company secured contracts worth approximately RM 94 million, accumulating to RM 635 million over FY2023.

This is a significant 27% yoy growth from FY2022.

Furthermore, the company has a promising deal pipeline valued at around RM 1.5 billion as of end-June 2023.

A sizeable portion of this, roughly RM 220 million, is anticipated to be finalised in the upcoming months.

Backed by this, Silverlake is setting its sights on achieving revenue close to RM 850 million in FY2024.

4. Focus on manpower and project delivery

For Silverlake, efficient project delivery is paramount.

The company currently handles over 50 projects simultaneously and is determined to allocate sufficient resources to ensure their successful delivery.

Additionally, Silverlake foresees growth being propelled by its three main products – Silverlake Integrated Banking System (SIBS), Mobius, and Symmetri.

There is an expectation that as Mobius gains traction, improved pricing will support the gross profit margin near 60%.

5. Acceleration of digital transformation to boost earnings

Silverlake’s key markets continue to exhibit strong growth and the digital transformation continues to accelerate growth in the financial services sector.

With a strong order book and balance sheet, Silverlake is in a strong position to tap on these growth opportunities.

As of 30 June 2023, Silverlake has cash and cash equivalents of around RM 494.7 million.

According to the Group’s Managing Director, financial services institutions continue to look for innovative and credible partners in their quest to transform how they deploy information technology in their businesses.

Exciting growth prospects and resilient recurring business

Investing always comes with its set of risks and rewards.

While Silverlake has had to navigate through some unexpected hurdles, its order momentum and strategic focus on growth are undeniable.

Potential investors should remain vigilant about execution risks, especially in scaling products like Mobius.

However, the positive trajectory and vision of the company make it a compelling consideration for Singapore investors.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

Share this

Subscribe to our weekly
newsletter and stay updated!