On steady momentum
- 4QFY6/22 net profit of S$48m was above consensus but below our expectations due to weaker GPM of c.50% vs. c.60% run-rate.
- Business momentum is steady. Deal pipeline remained robust (RM1.9bn). Secured backlog of RM570m provides firm earnings support in FY23F.
- Reiterate Add with higher TP of S$0.42. Rising competition from digital banks will drive investment/upgrades in core banking systems as a key catalyst.
4QFY6/22 revenues supported by Mobius implementation
SILV recorded net profit of S$47.9m in 4QFY6/22 (+19% qoq, -22% yoy). This was 7% above consensus’ estimates but 14% below our forecasts. FY6/22 formed 102%/96% of our/consensus’ full year estimates. The outperformance was largely due to lower-than-expected GPM (c.50% in 4QFY6/22 vs. run-rate of c.60%) – a result of higher staff bonus provisions (for retention) and a larger mix of lower-margin revenue streams (hardware and initial stages of services). We expect GPM to recover upwards going forward. Nonetheless, topline growth was robust (+17% yoy), supported by strong project-related revenue (+37% yoy, driven by delivery of software licencing contracts, banking deals secured in ID and TH as well as implementation of 2 Mobius contracts) and steady maintenance and enhancement revenue (+5% yoy). However, heftier opex for general business development purposes (+43% yoy in 4QFY6/22, adjusted to remove one-off fair value remeasurement of put liability and derivative asset in 4QFY6/21) was a drag on earnings.
Management is optimistic; robust deal pipeline and contract wins
Management’s tone was upbeat on the back of steady business momentum. SILV contract wins were RM113m in 4QFY6/22, bringing FY6/22 order wins to RM508m – significantly higher than FY6/21’s total of RM326m. Its deal pipeline was robust at RM1.9bn at end-4Q, with c.RM250m worth of these deals marked with a high probability of closure (final stages of negotiation). SILV’s secured backlog (revenue highly likely to be recognised) going into FY6/23F stood at c.RM570m (c.77% of FY6/22 revenues) – providing a firm base for steady earnings growth in FY23F. One of these deals was recently closed in SG to integrate four other markets (MY, ID, TH, VN) onto its platform. Thus, we believe that steady margin upside from Fed rate hikes should support banks’ earnings growth in FY23F, supporting continued investment in digitalisation/core banking solutions that SILV provides.
Reiterate Add with a higher TP of S$0.42
SILV reports that revenues delivered through cloud computing rose to 13% in FY6/22 (FY6/21: 6%), which is encouraging. We understand that interest from TH (especially with the delivery of its first Mobius deal there) has been strong and expect this to drive order win momentum in FY6/23F but tone down FY23-24F EPS growth by c.3-4%, mainly to factor in higher taxes. We raise TP to S$0.42 as we roll forward to CY23F (pegged to 16x CY23F P/E, 0.5 s.d. below mean). Downside risks are execution risks in rolling out Mobius on a large scale.