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Earnings Commentary: Silverlake Axis’ 22% Jump In Profits
Tradeable | 06 February 2013
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By: Simeon Ang
Articles (125) Profile

In this day and age when productivity is much sought after as a key performance indicator, financial institutions are turning to providers of IT solutions that allow them to remain flexible and agile. Silverlake Axis is one such provider. Touted as a leading provider of integrated banking solutions to major banks, the company boasts that its customers in Asia and the Middle East includes eight of the 20 largest banks in Southeast Asia.

It is thus little wonder that Silverlake Axis handed in a healthy set of financial results for 1H13.

The Numbers
Off the bat, bottom line figures point to a very rosy picture for Silverlake as net profit for 1H13 ended 31 December 2012 grew over 21.9 percent to a rather auspicious RM88.8 million. This robust growth in bottom line figures were attributed by management to 11.7 percent higher gross profits. The higher gross profits were in turn due to higher margins from its software licensing and maintenance and enhancement services segment. Perhaps a minor blotch on the record came from declines in its software project services (-57.8 percent) and sales of software and hardware products (-89.4 percent). The declines were largely due to large contracts and product orders that were executed in 1H12.

Also of note were the growth of other income items, in particular interest income. Management noted that the growth was due to increased cash reserves that were placed with financial institutions. Cash reserves had grown 39.5 percent from June 2012 to hit about RM134.5 million.

The Asian Growth Story
Although economic uncertainties are widely expected to be prevalent in developed economies for the most part of 2013, Silverlake Axis expects most of the Asian economies to continue growing at a healthy pace. It is here, that the company derives most of its business revenue.

The company’s management believes that financial institutions in Asia will continue to make investments in technology to improve on their competitive edge in a digital economy. This belief stems from increased contracts and extensions that were secured by the company in December 2012.

In its closing statements of its press release, Silverlake Axis said that its order book remains “sizeable” for its software and implementations services. The company also said that its recurring income from maintenance and enhancement services is expected to continue growing, thus contributing to improving margins as seen during this most recent financial results.

CIMB Analysts’ Love
CIMB analysts William Tng and Renfred Tay expressed their “penchant” for Silverlake Axis with a glowing research report espousing the various virtues of the counter. In particular, they seem to like Silverlake for its increase in recurring income (maintenance and enhancement services) as well as proximity to ASEAN banks. They point to other catalysts for the stock in the form of more contract announcements as well as good quarterly results like the most recent one.

In sum, William and Renfred had two words for investors, “Stay Invested”.

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Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

Silverlake Axis  0.475 -0.005 -1.04%   
Business: Provides software solutions & svcs. [FY18 Turnover] Maintenance & enhancement svcs (M&E) (72.7%), software licensing (10.1%), software project svcs (6.7%), insurance processing (5.4%), credit & cards processing (3.4%), sale of software & hardware (1.7%).

Insight: Feb-19, 1H19 revenue jumped 27.8% to RM336.2m due ... Read More

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