Results Analysis: 1H24 results in line; healthy deal pipeline
- 1H24 results in line. Recurring revenue +7% y-o-y; higher maintenance and enhancement services from new contracts and higher renewal rate from existing ones.
- Margins remained within comfortable range, though a tad lower compared to last year.
- Healthy deal pipeline; consistently >RM100m secured per quarter.
- No change in forecasts, maintain BUY and TP of S$0.35.
1H24 results in line; recurring revenue +7% y-o-y. 1H24 revenue grew marginally, +1% y-o-y, +6% h-o-h, to RM397.4m. Total recurring revenue comprising maintenance and enhancement services, insurance ecosystem transactions and services, and retail transactions processing grew 7% y-o-y. Recurring revenue accounts for 75% of total revenue, up from 73% in 1Q24. We can expect higher maintenance and enhancement services going forward, coming from the new contracts that the group has secured recently, and also from higher renewal rate from existing customers. Key projects implementation from contracts secured in prior years are contributing to the higher project services revenue, which was up 56% y-o-y in 1H24. However, software licencing revenue plunged 53% y-o-y as 1H23 included one large software licensing transaction from a client in Indonesia. This was partly mitigated by other smaller contracts secured in 1H24.
Revenue breakdown by business activity
| (RMm) | 1H24 | 1H23 | Change (%) |
| Software licensing | 26.5 | 56.0 | -53% |
| Software project services | 63.9 | 40.9 | 56% |
| Maintenance and enhancement services | 267.9 | 249.8 | 7% |
| Sales of software and hardware products | 8.1 | 17.3 | -53% |
| Software-as-a-Service | |||
| – Insurance processing | 28.6 | 26.3 | 8% |
| – Retail | 2.4 | 1.9 | 24% |
| TOTAL | 397.4 | 392.3 | 1% |
Source: Company; DBS Bank
Margins remained within comfortable range, though a tad lower y-o-y. Gross margin for 1H24 came in at 55.4% (vs 58.5% in 1H23); net margin at 22.3% (vs 25.3% in 1H23). The slightly weaker margins were mainly due to lower software licencing revenue, which commands higher margins, and also higher expenses. However, the group’s expense over revenue ratio of 30% is still below industry benchmark of 40%. Net profit for 1H24 of RM88.6m was 11% lower y-o-y but up 26% vs 2H23. Overall 1H24 revenue and net profit account for 49%/50% of our forecasts, inline.
Healthy deal pipeline; consistently >100m secured per quarter. The group has about RM1.4bn of transaction value in the pipeline that it is actively pursuing, with RM153m in deals in advanced stages of negotiation with a high probability of closure in the coming quarters. In 1H24, it recorded total contract wins of about RM240m, with RM114m secured in 2Q24. Order momentum has been strong, with at least RM100m orders per quarter. We expect this momentum to continue.
No change in forecasts, maintain BUY and TP of S$0.35, pegged to PE of 15x PE (four-year average) on FY24F earnings. We continue to like Silverlake for its high recurring revenue (c.75% of total revenue) and attractive gross margin of close to 60%.