Rising tide
? 2QFY6/22 core net profit of RM59.5m was above expectations given stronger order wins. GPM was stronger at c.62% due to higher licencing revenue.
? Order wins of RM176m in 2QFY6/22 were a record high (FY21: RM326m). Potential deal pipeline robust at c.RM1.3m, with RM180m close to finalising.
? Reiterate Add with higher TP. We think SILV is poised to benefit from banks’ rising investment appetite for tech upgrades amidst a rising rate cycle.
2QFY6/22 revenues beat expectations on stronger deal wins
2QFY6/22 core net profit of RM59.5m (+69% qoq, +72% yoy) beat our/consensus estimates by 12%/35%. 1HFY6/22 accounted for 53%/57% of our/consensus FY22F forecasts. The beat was attributable to two large deals signed during the quarter and the recognition of delayed licencing revenue of a deal closed in 4QFY6/21 which led to revenues rising 35% qoq (+28% yoy). Although administrative expenses were elevated at RM18m (from RM8m in 2QFY6/21) due to SILV’s performance share award accrued, this was offset by lower finance costs (-38% qoq/-27% yoy) following the end of the unwinding of discount on contingent consideration payable for the acquisition of Silverlake Investment (SG) in FY18 and the full repayment of a revolving credit facility in FY21. On balance, operating profit rose 76% qoq (+41% yoy).
Record-high quarterly order wins of RM176m
We believe that SILV has passed its inflection point, with stronger order win momentum of RM176m in 2QFY6/22 (FY21: RM326m) – a record high. This brings its secured backlog to RM655m (c.81% of management’s target for FY22), with Mobius (cloud-based system) deals accounting for c.20% of this. Meanwhile, SILV’s pipeline of potential deals stood at RM1.3bn in 2QFY6/22, with RM180m of this in the final stages of negotiation.
Both Mobius and SIBS contract wins are tracking well
Notably, the two large deals in this quarter comprised a Mobius deal in Thailand and a SIBS core banking deal in Indonesia, both of which will contribute licencing and project services revenue in FY23-25F. Maintenance and services revenue growth also chartered strong growth (+13% qoq, +9% yoy) on the back of new contracts secured in ASEAN. Going forward, we are optimistic of SILV sustaining GPM above c.60% (2QFY6/22: 62%, FY21: c.60%) as higher-margin licencing revenue strengthens. While Mobius deals are picking up traction, SILV remains committed to growing SIBS given its trusted franchise and reliable operating track record, making it the continued product of choice for more traditional banks. Downside risks are execution risks in rolling out Mobius on a large scale.
Reiterate Add with higher TP of S$0.41 pegged to 16x CY22F P/E
With asset quality across the region stabilising and banks poised to benefit from the rising rate cycle, we think that SILV is well-positioned to capture banks’ growing investment appetite for technological and core banking system upgrades. Reiterate Add with higher TP of S$0.41, still pegged to 16x CY22F P/E (c.0.5 s.d. below mean).