Thanks to a brimming orderbook and raised licensing contribution.
Analysts are upbeat about Silverlake Axis’ 2H16, despite the company’s disappointing results in H1. Shaking off the last of one-off costs that mired profitability in H1, Silverlake is geared for a better H2 with a robust orderbook, increased licensing contribution, and a potential stake sale.
According to a report by RHB, stripping the company’s Symmetry Group acquisition, Silverlake has around MYR160m worth of orders remaining as of 2Q16. While most banks are slashing big capex spending, they are still burning cash on maintenance and enhancement services. Silverlake is also prowling for projects in Malaysia, and those involving Japanese banks that have bagged assets in Indonesia which are all in short-listing phases.
Also, while Silverlake’s licensing revenue tumbled 28% in 1H16, it was due to the fact that several projects that have more focus on licensing will be launched in 2H16. Management was optimistic that licensing revenue will rise at low single digits YoY for the full year, which means it is banking on licensing revenue growth in H2. With increased licensing revenue, profitability and gross margins are set to pick up in the latter half of FY16.
Additionally, Silverlake is sitting on a year-long moratorium that expires in May for a 20% stake in a China-listed associate. At current market prices, the stake is worth about $600m, or about half of Silverlake’s current market capitalisation. If a sale of the stake happens when the moratorium ends, RHB believes that Silverlake is likely to return the excess cash back to shareholders unless it sets out on a major acquisition.
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