Silverlake Axis set for strong 4Q13 results: OSK-DMG

3 catalysts driving its positive outlook.

According to the research firm, healthy recurring income flows, additional profit contributions from new businesses and strong project revenue recognition should all push the company to a 26% yoy profit rise this year to MYR55-60m.

Here's more from OSK-DMG:

New subsidiary begins contributing to group performance. SILV recently acquired Cyber Village (CV), a mobile financial services solutions provider. The acquisition price was fair at 6.6x FY12 P/E, which is considered attractive for software companies. Notably, CV secured a new contract not long after the acquisition, namely implementing a new Internet banking system for Bank Rakyat, Malaysia’s biggest Islamic cooperative bank. CV will, subsequently, provide maintenance services as well. Similar to SILV’s earlier acquisition of insurance software companies, we expect all these new businesses to drive the company’s profit growth and sweeten its product suite.

Strong incoming results complemented by higher dividends. For its upcoming 4Q13, we expect SILV to conclude a good year with stellar results, generating about MYR55-60m in PATAMI (+26% y-o-y) on the back of: i) strong project revenue recognition, ii) healthy recurring income flow from licensing and maintenance, and iii) additional profit contributions from newly-acquired businesses. We also expect its final dividend to be raised to 1.2 cents (+0.04 cents), translating to an attractive FY13F yield of around 4.5%.

Price weakens below the placement price. SILV has successfully placed out 150m shares to large institutional investors (50m vendor, 100m new) at a price of SGD0.75 per share, raising around SGD73.1m in the process. The net proceeds will be able to refill its mergers and acquisitions (M&A) war chest and we expect the group to make more earnings-accretive acquisitions. As such, we believe that the placement price of SGD0.75 will provide support and, with the share price trading below this threshold currently, this presents a good buying opportunity for investors.