Silverlake Axis hits unexpected jackpot with OCBC-Wing Hang merger

Its profit rose 27% in FY14.

It’s time for the other firms to come and play after OCBC’s successful acquisition of Wing Hang bank. One of the companies will clinch a windfall from the deal will be mainboard-listed financial services firm Silverlake Axis.

According to DBS, the completion of the OCBC-Wing Hang merger will bring Silverlake RM200m ($79.2m)
worth of new orders towards the tail-end of the year.

Maybank Kim Eng affirms this, noting that Silverlake has commenced initial work for OCBC’s acquisition of Wing Hang Bank, with the expectation of more contracts to come.

OSK DMG also called attention to Silverlake’s new contracts in Malaysia, Singapore, Indonesia and Thailand, stating that revenue from maintenance and enhancement services grew 21% to RM210.3m ($83.3m).

Though the reports painted a rosy outlook for Silverlake, both DBS and OSK DMG cautioned that the stock is quite expensive at current levels.

“We have adjusted our FY15/16F estimates by +6/+8% on the back of potential Wing Hang and RHB deals, resulting in a higher DCF-backed TP of SGD1.12 (from SGD1.00), close to current levels. We feel that valuations seem stretched at higher price levels, as even at current price levels, it represents a FY15F P/E of 23x and a PEG of 1.76x,” noted OSK DMG’s report.

Meanwhile, DBS cautions that “SILV is not cheap at 20x FY16F PER. Earnings growth was higher in FY14 due to full-year consolidations of Merimen (insurance processing) and Cyber Village (Internet & mobile banking). Going forward, growth may normalise to 12-15% without new acquisitions. The rise of
digital banking in Asia could benefit SILV in the long term, leading us to raise terminal growth to 2% from 1% earlier.”

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