Silverlake Axis eyes 2 mid-sized contract wins

Its pockets will be RM30m fatter.

According to CIMB, Silverlake is now in talks with two other potential customers that could bring in two more mid-sized contracts worth approximately RM30m. 

Here's more:

We fine-tune our model to factor in new updates. As such, core net profit estimates for FY13-15 are raised 4-10%. This lifts our DCF-based
target price (unchanged COE of 8.5% and LTG of 0%) while we retain our Outperform rating. Catalyst should come from more contract wins announcements and positive results.

Feeling positive. Management is also seeing some activity in Thai banks, which are moving to modernise their core banking systems. These banks include Bangkok Bank and Krung Thai Bank (an existing customer for payment systems).

Additionally, RHB Bank, which has EPF (another customer) as a parent,will be looking for a system-wide upgrade as it expands. We believe Silverlake is well-placed to capture these new customers.

Sustainable dividend level. The 100% increase in dividends raised questions as to whether this level of payout will be the new norm. Management explained that given its rapidly increasing recurring income,strong cash flows and net cash position, the board now feels that this new level of dividend payout is sustainable; we concur.

As such, we raise our dividend payout ratio assumption from 60% previously to 70%, which raises dividend yield from 4-5% to 5-6% for FY13-15.

Other forecast changes. Other changes to our forecasts include lowering our aggressive assumption for opex and a slightly lower gross margin in 2HFY13 to factor in higher project services revenue vs. licensing revenue. No changes were made to our order book assumptions.