Saturday, March 24, 2012

Silverlake Axis - Part 4 (Other businesses)

Before I start on Part 4, I will like to add on some stuff that has been missed out earlier, especially when part 3 is very long.
Silverlake Axis has a 100% successful implementation track record which is very rare given that an estimated 25% of all CBS projects “fail without any results” while another 50% do not meet their original objective. As the implementation project is often multi-millions, banks will definitely prefer one with a good track record.
Secondly, according to one of the DBS report, maintenance and enhancement service fee has been increased by 10-15% this year. This shows Silverlake’s pricing power especially when it is doing so in the current economic condition.
Now, we shall have a look at all other segments as well as its associates.
Customised Software Solution
This is provided upon request from the clients with the main aim of improving the CBS and installing add-ons so as to provide the bank with an added advantage over its rival. Profit margin in this area is around 40% which is much lesser than that of a maintenance and enhancement service. SIBS is a highly customizable platform where new features can be installed without changing a single line of program code once the system is installed.
Sale of software and hardware products
This segment constitutes the reselling of hardware and system software on which SIBS runs on. It is more of a complementary service to its core business of SIBS. Profit margin in this area is at 25% due to its long-term partnership with IBM.
QR Tech
They provide retailers with a system solution called “PROFIT” and constitute part of the recurring income. It is capable of connecting every retail store around the globe to one database, providing services like Inventory Management, Warehouse Management, Supply Chain Management as well as Account Receivables and Payable. Customers include Robinsons, John Little, ├ćON Co and Marks & Spencer. AEON is the largest retailer in the whole of Asia with a retailing group of 180 companies. Operating in Japan, China and South-East Asia, it has 590 general Merchandise Stores, 1307 Supermarkets, 3811 Convenience Stores, 3305 Specialty Store, 2657 Drugstores and 1410 Service Business. QR Tech currently accounts for around 10% of the Group’s total revenue.
http://www.aeon.info/export/sites/renewal/common/images/en/aboutaeon/imgsrc/gp_2011.pdf

Card Processing
Initially a joint venture with SBI Group, Silverlake Axis acquired the remaining 75% stake in 2010 for an amount of SGD 7.59 million dollars. Accounting for RM 16.5m in revenue in 2011, it suffered a loss of RM 3.9 million. Was the management wise then in acquiring SBI card, given that it was a loss making company? If one were to examine closer, the loss was an accounting loss but it does not create cash outflow. Amortization of intangible asset of RM 6 million was the main reason for the loss. However, do take note that it still creates a positive cashflow of RM2.1m and this amortization was not due to real impairment losses. This business is synergistic to its QR Tech and SIBS as AEON Group and Bank Rakyat Indonesia are also using SBI Card processing software. SBI group itself is using the processing service and has around 63000 card users as of 2010. This segment is still at a rather infant stage and has the potential to grow.


Global Infotech
Formed in 1998, the main purpose of the business is to provide IT solution for banks and financial institution in China. Till date, they have more than 90 clients in China using their financial software, being ranked number 4 in terms of market share of IT solution for financial institutions in China. In 2003, they received a joint investment of US 6 million from DEG, IFC and OCBC. Being a member of the World Bank Group, IFC provides loan and equity financing for the private sectors in the developing countries, while DEG is the German Investment Corp, owned by the government of Germany. Silverlake Axis’s total stake in it is 27% from its US 20 million investment in 2007.
As of 5th December, 2011, Global InfoTech has registered for consideration of listing in the China Stock Market and this will not only be capable of unlocking value for Silverlake but will also be able to fund Global InfoTech for its expansion.
http://www.csrc.gov.cn/pub/zjhpublicofbj/gongg/201112/t20111220_203960.htm

ePetrol
A 24.5% stake was taken in it by Silverlake Axis for a sum of RM 24m in 2008. However, no cash was being spent in this investment in associates as the amount was eliminated from the purchasing of license from Silverlake Axis by ePetrol. ePetrol “pioneered an innovative payment system which uses the Malaysian National ID Card (MyKad) as the payment instrument for fuel purchases in petrol stations.” In short, it allows cashless payment without the issuing of a credit card as the National ID card is being used instead.
The last part will be summary and conclusion where the key points will be highlighted and valuation will be discussed.

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