Wednesday, May 9, 2012

Silverlake Axis - FY 2011 9M Result Review

Silverlake Axis delivered an outstanding quarter once again, not very surprising given that an estimated RM 5650 million worth of projects are to be recognised from 2012 to 2014.

For Q3 2012, revenue increases by 21% while net profit increases by 63% compared to Q3 2011. Surprisingly, there's a 50% fall in Selling and Distribution costs as well as Administrative Expenses. This was as a result of "the RM8.4 million charge on grant of shares awards pursuant to the Silverlake Axis Ltd Performance Share Plan ("PSP") in Q3 FY2011." not occurring in Q3 2012. Therefore, net profit margin excluding extraordinary item remains the same at around 43% for the quarter as revenue mix did not change much.

From the above figure, we can also see that quite a sizeable portion of the profit from the MYR 390m licensing contract for HNA Group and CIMB Group has not been recognised yet. To date, a total of MYR90m has been recognised for Software Licensing, while MYR 40m has been recognised for sales of hardware product from FY 2011 and FY 2012. Therefore, conservatively there's still at least another MYR 180m for software licensing to be recognised. Assuming 90% profit margin, that will be a MYR 162m profit coming solely from Software Licensing over 2 years and 1 quarter.

For the balance sheet, trade and other receivables decreased from RM121m to RM107m. Amounts due from customers for contract work-in-progress increases from RM 10m to RM 57m, this segment is what that has been recognised as revenue in the financial statement but that they have not yet billed the customer for it. Cash balance drops from RM 73.4m to RM 65.7m as a result of RM 33.5m used for acquisition of ISIS as well as RM 52m being paid out as dividend so far.

Other than the release of result, Silverlake Axis has also released the news that it has won a new licensing contract with Malaysia Building Society Berhad (MBSB). This is going to be very significant as licensing contract has the highest profit margin at 90%. In term of asset size, MBSB' total asset is 1/6 that of the sixth largest bank of Malaysia, AmBank. While this contract size should be worth at least 10m SGD, the best thing is that Silverlake Axis has finally secured a contract for the financial year. This contract will be fully realized by FY 2013 and let's hope it marks the start of new contract win for Silverlake Axis. The more important contract is still Touch N Go by CIMB of which there is no new yet.

For this quarter, a dividend of SGD 0.5 cents has been announced to be paid on 20th June 2012, which makes the total dividend yield so far at 3% for the first 9 months. Outlook is very positive for Silverlake in terms of profit as there's still quite some bit of licensing fee that's not yet recognised. Finally, it is of great significance that they have finally secured 1 contract for the financial year, lest they go into FY 2013 without any new contract secured the previous year.

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