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The tide is shifting

  • 1QFY6/22 core net profit of RM35.2m (+7% yoy) was below expectations mainly due to softer project-related revenue from a delayed contract signing.
  • Order wins rose to RM123m in 1QFY6/22 – topping the past 4 quarters (FY21: RM326m). Potential deal pipeline stayed robust at RM1.3bn.
  • Reiterate Add. We look past the softer 1Q and forward towards sequential earnings growth as SILV’s stronger order win momentum gets recognised.
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1QFY6/22 revenues affected by delayed licencing fees

1QFY6/22 core net profit of RM35.2m (-42% qoq [4QFY6/21 adjusted for one-off item]/ +7% yoy) was below expectations, accounting for 20%/21% of our/Bloomberg consensus’ FY22F forecasts. The miss was mainly due to weaker software licensing revenues (-55% qoq/ -33% yoy) from a Mobius deal closed in 4QFY6/21 that was not recognised due to administrative delays in contract signing. Although other income dipped 63% yoy as government-related subsidies in relation to Covid-19 dropped off, total expenses eased 12% yoy due to a decrease in finance costs. On balance, operating profit expanded 3% yoy in 2QFY6/22. Management does not expect the imposition of a one-off prosperity tax (Cukai Makmur) in Malaysia on companies with chargeable income of above RM100m in FY22F to be significant, and will likely affect only one of SILV’s legal entities – we estimate incremental tax expense of c.RM2m-3m in FY22F.

Deal closure momentum picking up

Management remains optimistic of improved yoy performance in FY22F. This is backed by stronger order win momentum of RM123m in 1QFY6/22 (FY21: RM326m), bringing its secured backlog to RM560m (c.70% of management’s target for FY22F). The new deal closures comprise contracts with 28 (including 1 new) customers in Asia, Europe, the UAE and Africa. Meanwhile, SILV’s pipeline of potential deals stood at RM1.3bn as at end-Sep 21, with c.RM400m-500m in final stages of negotiation. Deal pipeline visibility points towards stronger earnings growth in 2QFY6/22F on the back of the recognition of delayed licencing revenue (from 4QFY6/21), an additional Mobius (cloud-based system) deal closure and a SIBS (core banking system) contract with an Indonesian bank.

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Reiterate Add. We expect order wins to drive sequential growth

We think SILV’s strong order book momentum is reflective of a progressive pick-up in banks’ appetites for technology and core banking solutions. As headwinds persist across the region in terms of potential asset quality flare-ups as government-led moratoriums expire, we think Mobius’ value proposition of lower up-front costs and its ability to roll out monoline business lines (and not a complete switch of a core banking system, if preferred) will be a key deal-clincher. Reiterate Add with TP at S$0.37, pegged to 16x CY22F P/E (c.0.5 s.d. below 10-year mean). SILV is part of a consortium (with a state-owned entity) vying for one of five digital banking licences in Malaysia, which the central bank is expected to award in 1QCY22F. Downside risks are execution risks in rolling out Mobius on a large scale.