SINGAPORE | TECHNOLOGY | INITIATION Rating: DCF (WACC: …internetfileserver.phillip.com.sg/POEMS/Stocks/... · SWOT Analysis Strengths Excellent 100% track record in successful system

16 January 2014

Page | 1 MCI (P) 046/11/2013 Ref. No.: SG2014_0007

SILVERLAKE AXIS LTD Empowering Growth in ASEAN banks

SINGAPORE | TECHNOLOGY | INITIATION

Rating: Accumulate

Investment Merits

Capitalising on regional demand for core banking transformations, with about RM300 million project backlog and poised to win further contracts

Future recurring revenue stream generated with each successful implementation of its licensed software system.

Superior net margin at 49.2% above peers' average at 17%

Solid cash-generating business model with net cash of RM373 mil, offering attractive 4% dividend yield

Expansion of software offerings beyond core banking to meet the increasing demand for the digital economy business globally.

Industry Trends With Basel III regulations and increasing customer sophistication, we foresee banks in ASEAN would need to innovate for continued growth through core banking transformation. Key reasons for effecting major changes to core banking systems include:

Expansion and consolidation of banks in the region

Technology trends in Internet and mobile banking

"Big Data" analytics to drive further IT investments

Many top banking players in Asia/Pacific still on legacy systems

Rapid growth in Islamic banking and finance SWOT Analysis Strengths

Excellent 100% track record in successful system implementations

Key ASEAN market with wide customer network

Solid free cash generation, balance sheet with high cash balance, minimal debt ratio

Deriving synergies from recent acquisitions Weakness

FX exposure may pose material impact to profit Opportunities

Expanding foothold in ASEAN market as banks expand regionally

Growth opportunities in China, Hong Kong, Japan and MENA regions

Expansion into insurance, payment, retail and logistics business with its enterprise solutions

Threats

Slowdown in IT investments, expansion activities by banks

Strong competition from other prominent core banking vendor Investment Action Based on the investment merits above, we initiate coverage of Silverlake Axis with an Accumulate recommendation, deriving a target price of S$1.02 using DCF valuation. This gives an implied FY14F P/E multiple of 22.6X. While the multiple may be high, we note the excellent growth potential for Silverlake Axis expanding its footprints in Asia.

Target Price (SGD) 1.02

Forecast Dividend (SGD) 0.04

Closing Price (SGD) 0.92

Potential Upside

Company Description

Company Data

Raw Beta (Past 2yrs weekly data) 0.28

Market Cap. (USD mn / SGD mn) 1614 / 2054

Ent. Value (USD mn / SGD mn) 1499 / 1911

3M Average Daily T/O (mn) 1.3

Closing Px in 52 week range 0.50 0.96

Major Shareholders (%)

1. Intel l igents ia Holding Ltd 67.6

2.2

3. Wi l l iam Bla i r & Company LLC 1.1

Valuation Method

DCF (WACC: 8.5%; termina l g: 4.0%)

Analyst

Colin Tan

col intanwh@phi l l ip.com.sg

+65 6531 1221

2. Aberdeen

15.0%

Si lverlake Axis Ltd is a leading provider of

core banking solutions for banks and

financia l ins ti tutions s ince 1989. Over 40% of

the top 20 largest banks in South-East As ia

uses i ts Si lverlake Axis Integrated Banking

Solution (SIBS). Since 2010, i t has expanded

its product offerings to include enterprise

solutions for the payments , insurance, reta i l

and logis tics industries .

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Silverlake Axis Ltd 16 January 2014

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Brief Company Profile A leading provider of integrated banking solutions for major financial institutions since 1989 – Over 40% of the top 20 largest banks in South-East Asia use Silverlake Axis Integrated Banking Solution (SIBS), supporting core banking operations. Over 20 years track record of 100% successful implementations – delivering end-to-end core banking solutions implementations at over 100 customer sites. Expanded offerings beyond core banking solutions through several acquisitions – increasing business opportunities in payment, retail, logistics and insurance industries. Inntron’s iRanking for Dec 2013 ranked Silverlake Axis as among the top 12 core banking system vendors worldwide, top 5 for Asia/Pacific What is a Core Banking System? A core banking system is essentially the centre of all systems running in a bank - the core of a bank's IT platform. The system supports 24x7 daily processing of bank transactions across multiple channels likes ATMs, bank branches and Internet banking. With technology advancement, core banking system provides an integrated solution, including a central operational database of customers' assets and liabilities. Investment Merits of the Company 1. Capitalising on regional demand for core banking transformations, with about RM300 million project backlog and poised to win further contracts Silverlake Axis has won several major contracts in 2010 - 2013 (cumulative value of over RM650m) to implement its software systems for various customers in ASEAN, Ghana and Sri Lanka. Its existing project backlog of about RM300m (1.5x of its project-based FY13 revenue) provides good visibility for FY14E earnings. With its key market in ASEAN, core competencies and excellent track record, Silverlake would be expected to continue securing major contract wins on growing robust demand for core banking system transformations in the region. We estimate > 20% y-y earnings growth in our FY14E forecast. Fig 1. Projecting strong earnings growth ahead on further contract wins

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Source: Company, Phillip Securities Research

2. Generates future recurring revenue stream with every successful implementation of its licensed software system. Upon successful completion, software project would enter into a maintenance phase, generating annual recurring Maintenance and Enhancement Services (MES) revenue. Typically about 40% of the contract value would be accounted by software licensing and annual recurring maintenance revenue is based on 15-20% of licensing fees. This implies that about 6-8% of new project contract wins would be generated on a recurring basis. MES revenue accounts for almost half of total FY13 revenue at 44%, with 11.2% CAGR (3Y). With each new license sales of its software solutions, Silverlake Axis would grow its base of recurring MES income.


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Fig 2. Licensing accounts for 40% of project value; remaining 60% in project services

Software

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3. Superior net margin at 49.2% above peers' average at 17% Silverlake Axis competes with other internationally well-known core banking system vendors, such as Temenos, Oracle, Infosys, FIS and Tata Consultancy Services (TCS). However, the company boasts far better EBITDA and net profit margins above its peers, at 54.7% EBITDA margin and 49.2% net profit margin for FY13. This is a testament to Silverlake operating on an excellent business model as it continues to expand its footprint in its key ASEAN market. Fig 4. Superior EBITDA and Net profit margin above its peers

Source: Bloomberg, Phillip Securities Research 4. Solid cash-generating business model with net cash of RM373 mil, offering attractive 4% dividend yield Silverlake generates a healthy stream of free cash flow, with minimal debt (Debt ratio: 3% as of Q1FY14). Operating on this excellent business model, the company has continuously been able to pile up cash. Software development makes up the bulk of its capital expenditure, which is < 2% of revenue on average over the past 5 years. Shareholders are being rewarded with high dividend payout of 66% (3Y average). With a net cash balance of RM373 million and strong earnings growth ahead, Silverlake is well positioned for dividend growth, offering attractive dividend yield of about 4%.

Market Enterprise

Cap Value

Company FYE (US$m) (US$m) FY11/12 FY12/13 FY11/12 FY12/13

TEMENOS GROU-REG Dec 2,075 2,273 18.7 24.0 -6.0 5.4

FIDELITY NATIONA Dec 15,482 20,408 30.1 30.0 8.3 7.9

INFOSYS LTD-ADR Mar 34,167 30,039 31.9 28.6 24.7 23.4

ORACLE CORP May 171,396 158,588 45.7 46.7 26.9 29.4

FISERV INC Dec 15,038 18,648 31.0 31.5 10.9 13.6

TATA CONSULTANCY Mar 75,103 73,466 29.6 28.6 21.3 22.1

Peer's Average 31.2 31.6 14.4 17.0

SILVERLAKE AXIS Jun 1,614 1,500 47.3 54.7 40.6 49.2

EBITDA Margin Net Profit Margin


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Fig 5. Increasing Free Cash Flow (RM mn) with higher dividends paid out


5. Expansion of software offerings beyond core banking to meet the increasing demand for the digital economy business globally. Since 2010, the company has made several acquisitions to further enhance its software solutions and services as a strategic move to offer multi-industry solutions to enterprises with financial, logistics and retail business. The acquisitions results in an expansion of its customer base, leading to increasing business opportunities for the company. Fig 6. Major acquisitions to enhance product offerings and expand customer base

Date Acquisition Rationale

Mar-10 Acquired Si lverlake

Solution Ltd (SSB) and QR

Technology Sdn Bhd

- Increase income base from maintenance

- Enhance exis ting software solutions and services for financial, retail

business

- Expand customer base and network

Jul -10 Acquired Is is

International Pte Ltd

- Further enhance exis ting software solutions and services with

enterprise payment and integration platform capabi l i ties

Apr-13 Acquired Merimen

Ventures Sdn Bhd

- Extends software and service capabi l i ties to insurance business

- Adds to recurring income base with revenue generated on a per

transaction basis for each cla im processed

Jul -13 Acquired Cyber Vi l lage

Sdn Bhd

- Enhance exis ting software solutions and services with e-commerce

solutions and integrated Internet and mobile platform technologies Source: Company, Phillip Securities Research

Industry Trends Growing innovation demands in banking industry With Basel III regulations and increasing customer sophistication, the banking industry will face stricter regulatory and compliance requirements and higher customer attrition. This would lead to increasing operational costs and downward pressure on the returns. Increasing competition and labour cost in the banking sector would add on to the pressure on returns as well. Banks would need to innovate for continued growth and further value creation, through core banking transformation. We share some of the following key reasons for effecting major changes to core banking systems. #1. Expansion and consolidation of banks in the region As banks expand regionally beyond their domestic markets, they would need to scale up their core IT system supporting their banking activities. Banks expanding through M&A would also need to integrate the acquired bank's existing system into its core banking platform. As 6 of the top 10 ASEAN banks are using Silverlake's systems, Silverlake stands to benefit from the expansion and consolidation of the banking industry in ASEAN. #2. Technology trends in Internet and mobile banking The popularity of smartphones and tablets drives online banking transactions, including card payments and fund transfers, across digital channels which include mobile apps, e-commerce and websites. According to a survey by McKinsey, Asian

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consumers were increasingly using the Internet and mobile channels more than traditional channels such as telephone and bank branches. This would lead to increasing opportunities for Silverlake Axis as it has the necessary business solutions and technical capabilities. #3. "Big Data" analytics to drive further IT investments Big data refers to a huge quantity of dataset that consists of both structured and unstructured data. Dataset would include customer records and general ledger data (structured) as well as customer feedback via call centre logs or social media (unstructured). Analysing unstructured data is beyond traditional database management tools while older systems have limited capability to integrate and process big data. As the focus shift to customer-centric models with a flexible core banking architecture, banks and other financial institutions are increasingly expected to invest into new system enhancements that are capable of: i) integrating data from multiple sources and leverage on their huge database of customer data; ii) data analysis for detailed profiling of customers, improved risk management and boost business efficiency. Fig 7. Integration of data from multiple sources

Source: McKinsey, 2013, Retail banking in Asia: Actionable insights for new opportunities

#4. Many top banking players in Asia/Pacific still on legacy systems Due to limited functional capability, older systems would likely inhibit the bank's growth in a dynamic business environment. Adding functionalities to support new services and products on legacy platforms will also require significant investment of time and money for the enhancements. As the risks and costs of maintaining such legacy systems exceed the risks and cost of replacement, banks would migrate their legacy applications to new core banking solution for increased productivity, competitiveness and security. IDC Financial Insights (IDC) expects an impending wide-scale migration of core banking systems may be likely from 2013, notably from top 10 banks in each of the following countries: Taiwan, Philippines, South Korea, Hong Kong and Australia. #5. Rapid growth in Islamic banking and finance Islamic banking assets with commercial banks are expected to grow at double-digit CAGR of 19.7% over 2013–18, according to a report on World Islamic Banking Competitiveness by EY. Key drivers underpinning the growth include the rising demand of shariah-compliant investment banking products and increasing trade activities among Islamic countries. Shariah rules promote profit and risk sharing


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principles and prohibit charging interests for loans, which are the key differences between Islamic and conventional finance. The growth in Islamic banking would lead to increased IT investment on core banking system enhancements by banks catering to this segment. Silverlake Axis is able to capitalise on the growth as it provides Islamic banking solution catered for Islamic banks. Increasing IT spending by banks in Asia/Pacific IDC expects worldwide IT spending from banks to be US$215 billion in 2014 and Asia/Pacific would see growth of IT spending from financial services exceeding 7%. About 32-38 of the 120+ banks in Asia/Pacific are expected to make significant changes to their current core banking system within the next three years from 2013. Singapore, Thailand, Indonesia and Malaysia combined have an estimated IT budget of close to US$10 billion to be deployed in 2013–2014, according to IDC. Including China, Australia and India, the total IT budget deployment is forecasted to be close to US$50 billion. Key Risks Cutback in IT spending by banks pose negative impact to revenue and earnings A cutback in IT investments which may be due to a downturn in the global economy would have a negative impact on Silverlake's revenue and profit, given the project-based nature of its business. However, the recurrent revenue generated from existing Maintenance/Enhancement services contracts would limit the downside. Unable to retain staff who possess the technical expertise in its software systems Silverlake relies on the competencies of its software engineers, developers and management team to maintain its track record of successful implementations of its proprietary software systems. Other bigger banking systems vendors such as Oracle, FIS and Infosys may lure away Silverlake's pool of talents. On a positive note, management shared that the average staff turnover is less than 10%, which is a healthy level in our view. Banking customers may switch out from Silverlake to other core banking systems for cost savings and product innovation However we think the risk is low, given the high switching costs that banks would have to incur. Management has shared that the company has not lost a core banking customer, as attestation to the low risk. With continuing innovation of its software and staff possessing the necessary technical competencies to support the systems, Silverlake would be able to retain its key banking customers. Foreign currency risk Silverlake is exposed to FX risk primarily with respect to sales and operating expenses which are denominated mainly in SGD and USD. Contracts secured for Malaysian banks are denominated in MYR while other contracts may be denominated either in SGD (mostly) or USD. The company currently does not hedge any of its foreign currency exposure. Based on its sensitivity analysis, Silverlake would be substantially impacted by strengthening/weakening of either SGD or USD against the MYR.


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Fig 8.Sensitivity Analysis - FX impact on FY13 net profit and Equity

Currency Pair % FX change gain/loss % change gain/loss % changeSGD/MYR up 1% 2,720 1.39% 3,050 0.52%

down 1% (2,720) -1.39% (3,050) -0.52%USD/MYR up 1% 358 0.18% 6,198 1.05%

down 1% (358) -0.18% (6,198) -1.05%Baht/MYR up 2% 699 0.36% 800 0.14%

down 2% (699) -0.36% (800) -0.14%Yen/MYR up 20% 347 0.18% (1,317) -0.22%

down 20% (347) -0.18% 1,317 0.22%

FY13 Net Profit FY13 Equity


SWOT Analysis Strengths

Excellent 100% track record in successful system implementations

Key ASEAN market with wide customer network

Solid free cash generation, balance sheet with high cash balance, minimal debt ratio

Deriving synergies from recent acquisitions

Weakness

FX exposure may pose material impact to profit

Opportunities

Expanding foothold in ASEAN market as banks expand regionally

Growth opportunities in China, Hong Kong, Japan and MENA regions

Expansion into insurance, payment, retail and logistics business with its enterprise solutions

Threats

Slowdown in IT investments, expansion activities by banks

Strong competition from other prominent core banking vendor

Revenue Sources 1. Software Licensing Earns from license fees on its proprietary software system after delivery and customer acceptance. New contract wins in Malaysia, Thailand and Africa contributed to the growth (~89% y-y) in FY13. 2. Software project services Earns from rendering of software project services for project implementation and is accounted under percentage of completion method. Revenue will be progressively recognized as work continues on several implementations contracts won in FY13. 3. Maintenance and Enhancement Services Recurrent revenue stream generated from maintenance and enhancements contracts secured from existing customers in Singapore, Indonesia, Malaysia, Thailand and Philippines. Revenue in this segment has steadily grown at 11% CAGR over past 3 FY. 4. Sale of Hardware and Software Silverlake Axis is an authorized reseller of IBM hardware, which its software solutions run on. It earns rebates from the sale of IBM hardware products. Sale of hardware and software accounts for < 5% of FY13 revenue. 5. Credit Card Processing Derived from its card processing operation in Silverlake Japan Ltd, a wholly owned subsidiary in Japan. Silverlake Japan Ltd provides outsource full scale processing of credit cards issued by its customers.


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6. Insurance processing A new source of revenue following the acquisition of Merimen Group in 4Q13, which provides Software as a Service (SaaS) platform for insurance companies. It generates revenue on a per transaction basis for each claim processed and policy originated. It has a strong presence (in motor claims processing) in Malaysia and Singapore. Contribution from insurance processing would be higher in FY14E (PSR est. 4%), due to full-year recognition of revenue in this segment, compared to FY13. Fig 9. FY13 Revenue Segment Contribution

SW l icens ing

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Fig 10. FY13 Geographical (Region) Segment Breakdown

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Fig 11. FY13 Geographical (Country) Segment Breakdown

Malaysia

48%

Singapore

17%

Thai land

8%

Others

27%



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Business Overview Background Since its founding in 1989, Silverlake Axis has been providing proprietary software solutions for the banking industry. The company is in a strong partnership with IBM, as SIBS mainly runs on IBM's hardware and middleware technology. It has established a key market in ASEAN, with 6 of the top 10 ASEAN banks using SIBS. Fig 12. Inntron's latest top 5 ranking of core banking vendors in ASEAN Rank Indonesia Japan Malaysia Singapore Thailand Vietnam

1 Sigma FIS (Fidel i ty) Silverlake Axis Silverlake Axis FIS (Fidel i ty) FIS (Fidel i ty)

2 Silverlake Axis Oracle FSS FIS (Fidel i ty) Temenos Silverlake Axis Fiserv

3 Temenos Silverlake Axis Infopro Infosys Oracle FSS Silverlake Axis

4 Fiserv Temenos Temenos FIS (Fidel i ty) Temenos Temenos

5 Misys Fiserv Microl ink Misys Fiserv Oracle FSS Source: Inntron (as of 15-Jan-2014)

Fig 13. Six of the top 10 largest ASEAN banks using Silverlake Axis system

Bank Using Silverlake Axis System

DBS

OCBC √

Maybank √

UOB √

Publ ic Bank Bhd

Bank Centra l As ia

CIMB Group √

Bank Mandiri √

Siam Commercia l Bank

Bank Rakyat Indones ia √ Source: Bloomberg, Inntron

SIBS – a comprehensive, flexible and scalable Core Banking Solution Silverlake Axis’s core product, Silverlake Axis Integrated Banking Solution, offers a suite of over 40 modules and an end-to-end integrated banking solution, catering to Conventional, Islamic and Microbanking that support front office, middle office and back office operations. Some of its major banking clients that use SIBS include UOB, OCBC, Maybank, CIMB, Bank Mandiri, Hong Leong Bank, Bank Rakyat Indonesia and Thanachart Bank. Catering to the rapid growth in Islamic banking Silverlake Axis also offers Islamic banking solution to cater to the fast growing Islamic banks, through its Silverlake Axis Integrated Islamic Banking Solution (SIIBS). With increasing demand of Shariah compliant investment banking products, the company is able to capture growing business opportunities in this niche market. Enterprise Solutions Apart from core banking solutions, Silverlake Axis's product range include other enterprise solutions that caters to other financial, logistics and retail business. These solutions include Silverlake Axis Card System (SCS), a global card payments system, and Silverlake Axis Retail Merchandising System (PROFIT), an integrated retail system supporting end to end business process tracking and monitoring, supply chain management and performance reporting. Customers using its retail enterprise solution include major retail chains like Marks & Spencers, AEON and Robinsons.


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Investment in Associates Shares of associates' profit contribute about 1% of PBT in FY13. Its share of the associates' net assets is at RM66.7m as of end FY13. Fig 14.Shares in Associates Company Principal Activities Stake (%)

Global InfoTech Co. Ltd

Provides IT services for financia l services

sector in PRC 27

ePetrol Si lverswitch Sdn Bhd

Provides payment transaction technology

infrastructure solutions; manager services

for central ised interchange in Malays ia 24.5 Source: Company, Phillip Securities Research

Valuation Based on the investment merits above, we initiate coverage of Silverlake Axis with an Accumulate recommendation, deriving a target price of S$1.02 using DCF valuation. This gives an implied FY14 P/E multiple of 22.6X. While the multiple may be high, we note the excellent growth potential for Silverlake Axis expanding its footprints in Asia.


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Peer Comparison Fig 15. Comparison with other core banking vendors

Source: Bloomberg, PSR est

Market Enterprise

Bloomberg Cap Value

Company Ticker FYE (US$m) (US$m) FY13/14E FY14/15E FY13/14E FY14/15E FY13/14E FY14/15E FY13/14E FY14/15E FY13/14E FY14/15E

TEMENOS GROU-REG TMNSF US Dec 2,075.0 2,273.2 24.8 21.6 4.9 4.3 19.1 20.6 1.2 1.3 16.2 14.1

FIDELITY NATIONA FIS US Dec 15,306.4 20,232.8 18.4 16.6 2.2 1.9 11.9 11.4 1.6 1.7 10.9 10.4

INFOSYS LTD-ADR INFY US Mar 34,448.4 30,320.5 19.9 17.9 n/a n/a 26.6 20.0 1.6 1.9 13.8 12.1

ORACLE CORP ORCL US May 172,745.5 159,937.5 13.2 12.1 3.7 3.2 27.4 27.7 1.2 1.2 8.2 7.8

FISERV INC FISV US Dec 14,908.8 18,518.8 19.0 16.9 4.2 3.5 19.5 22.1 0.0 0.0 11.8 11.0

TATA CONSULTANCY TCS IN Mar 74,875.1 73,243.6 24.8 20.8 8.8 6.8 39.2 36.5 1.2 1.4 18.0 15.4

Peer's Average 20.0 17.7 4.7 4.0 24.0 23.0 1.2 1.3 13.2 11.8

SILVERLAKE AXIS SILV SP Jun 1,613.7 1,499.1 20.4 18.3 9.4 9.4 44.7 48.8 4.0 4.5 18.1 16.2

Div Yield (%) EV/EBITDA (x)P/E (x) P/B (x) ROE (%)


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Fig 1: FY13 Revenue Segment Breakdown Fig: 2: FY13 Geographical Segment Breakdown

Fig 3: Revenue Contribution (RM$'mn) Fig 4: Software Licensing & Project Services (RM$'mn)

Fig 5: Maintenance & Enhancement Services (RM$'mn) Fig 6: EBITDA (RM$'mn) vs EBITDA margin (%)

Fig 7: Net Income and Free Cash Flow (RM$'mn) Fig 8: Revenue, Receivables and Payables (RM$'mn)

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FYE Jun FY11 FY12 FY13 FY14F FY15F FYE Jun FY11 FY12 FY13 FY14F FY15F

Revenue 305 400 399 524 579 PPE 10 11 10 10 10

EBITDA 151 187 217 274 305 Intangibles 27 71 127 122 118

Depreciation & Amortisation (13) (11) (9) (9) (9) Associates & JVs 72 64 67 67 67

EBIT 138 176 209 265 296 Investments 0 0 0 0 0

Net Finance (Expense)/Inc 0 0 0 1 0 Others 0 1 2 1 1

Other i tems 4 2 2 8 8 Total non-current assets 109 147 205 201 198

Associates & JVs (10) 1 2 2 2 Inventories 0 0 0 0 0

Exceptional i tems - - - - - Accounts Receivables 121 121 101 150 166

Profit Before Tax 132 180 213 276 307 Investments 1 0 0 0 0

Taxation (16) (18) (17) (22) (25) Cash 72 98 362 256 303

Profit After Tax 115 162 196 254 283 Others 16 35 75 92 92

Non-control l ing Interest - - - (0) (0) Total current assets 211 253 539 498 561

Net Income, reported 115 162 196 254 283 Total Assets 320 400 744 700 759

Net Income, adj. 111 160 194 246 283 Short term loans 1 1 10 10 10

Accounts Payables 20 20 42 37 38

Others 83 60 52 44 44

FYE Jun FY11 FY12 FY13 FY14F FY15F Total current liabilities 103 81 103 92 93

Long term loans 3 2 15 13 13

EPS, reported 0.02 0.03 0.04 0.04 0.05 Others 1 19 37 45 45

EPS, adj. 0.02 0.03 0.04 0.04 0.05 Total non-current liabilities 4 22 52 58 58

DPS 0.01 0.02 0.03 0.04 0.04 Non-control l ing interest 0 0 0 0 0

BVPS 0.04 0.06 0.10 0.10 0.11 Shareholder Equity 213 298 588 550 607

FYE Jun FY11 FY12 FY13 FY14F FY15F FYE Jun FY11 FY12 FY13 FY14F FY15F

CFO P/E (X), adj. 15.8 13.4 19.9 20.4 18.3

PBT 132 180 213 276 307 P/B (X) 8.6 7.3 6.9 9.4 8.5

Adjustments 33 12 10 8 9 EV/EBITDA (X), adj. 11.5 11.0 17.8 18.1 16.2

WC changes (31) (38) (21) (81) (15) Dividend Yield (%) 1.3% 2.1% 3.4% 4.0% 4.5%

Cash generated from ops 135 154 202 203 301 Growth & Margins (%)

Others (19) (16) (18) (24) (26) Growth

Cashflow from ops 116 138 184 180 275 Revenue 73.7% 31.0% -0.4% 31.3% 10.7%

CFI EBITDA 74.9% 24.0% 16.2% 26.0% 11.6%

CAPEX, net (4) (2) (3) (4) (5) EBIT 81.4% 28.0% 18.4% 27.0% 11.9%

Acquis i tions , others 0 (35) (83) (35) (1) Net Income, adj. 84.2% 44.8% 21.0% 26.6% 15.0%

Cashflow from investments (4) (36) (86) (39) (5) Margins

CFF EBITDA margin 49.3% 46.7% 54.5% 52.3% 52.7%

Share i ssuance 0 0 180 0 0 EBIT margin 45.1% 44.1% 52.3% 50.6% 51.1%

Loans , net of repayments (1) (1) 22 (2) 0 Net Profi t Margin 36.3% 40.1% 48.7% 46.9% 48.8%

Dividends (69) (78) (149) (189) (223) Key Ratios

Others 0 (3) 61 0 0 ROE (%) 61.2% 63.6% 44.3% 44.7% 48.8%

Cashflow from financing (70) (82) 114 (191) (223) ROA (%) 38.3% 45.0% 34.3% 35.2% 38.7%

Net change in cash 43 20 212 (50) 47

Effects of exchange rates (1) 0 1 0 0 Net Debt/(Cash) (68) (94) (338) (233) (280)

CCE, end 72 92 306 256 303 Net Gearing (X) Net Cash Net Cash Net Cash Net Cash Net Cash

Income Statement (MYR mn) Balance Sheet (MYR mn)

Per share data (SGD)

Cashflow Statements (MYR mn) Valuation Ratios

Source: Company Data, PSR est


Page | 14

Total Returns Recommendation Rating> +20% Buy 1+5% to +20% Accumulate 2-5% to +5% Neutra l 3-5% to -20% Reduce 4<-20% Sel l 5

We do not base our recommendations entirely on the above quanti tative

return bands . We cons ider qual i tative factors l ike (but not l imited to) a s tock's

ri sk reward profi le, market sentiment, recent rate of share price appreciation,

presence or absence of s tock price catalysts , and speculative undertones

surrounding the s tock, before making our fina l recommendation

Ratings History

PSR Rating System

Remarks

12345

0.30

0.50

0.70

0.90

1.10

Jun

-12

Sep

-12

De

c-12

Ma

r-13

Jun

-13

Sep

-13

De

c-13

Ma

r-14

Jun

-14

Sep

-14

De

c-14

Source: Bloomberg, PSRMarket PriceTarget Price


Page | 15

Appendix Key Management Mr. Goh Peng Ooi - Group Executive Chairman Appointed Group Executive Chairman on 23 May 2006. He founded Silverlake Group in 1989 and has built it to become an established provider of an advanced, state of the art universal integrated banking solution. Prior to Silverlake Group’s formation, Mr. Goh had worked with IBM Malaysia. He held several senior positions over his 9 years career at IBM, his last being Marketing Manager for Banking and Finance Industry. Dr. Kwong Yong Sin - Group Managing Director Appointed as the Group Managing Director in 2005. He was previously a Non-Executive Director of the Company and the Managing Director of Silverlake Corporation from 2003 to 2005 and Connectif Commerce Sdn Bhd from 2001 to 2005. Prior to joining Silverlake, he was the Head of IT Consulting for Coopers & Lybrand (South East Asia) from 1984 to 1989 and the Partner/Vice President of Ernst & Young Global Consulting and Cap Gemini Ernst & Young for 11 years from 1989 to 2000. Fig 1. Corporate Milestones

Source: Company *2012-2013 milestones: include recent acquisitions of Merimen Online Insurance Processing Business (April 2013) and Cyber Village Internet and Mobile Commerce Solution Provider (July 2013)


Page | 16

Fig 2. Silverlake Axis's customer sites

Source: Company

Fig 3. Silverlake Axis's Contracts Contribution

2H 1H 2H 1H 2H 1H 2H 1H 2HContracts FY10 FY11 FY11 FY12 FY12 FY13 FY13 FY14 FY14

2 Contracts with HNA Group

Major upgrading contract with BIBD

SIBS upgrading for a SE As ian bank

CIMB Group's 1 Platform

SIBS Merger Integration for Thanachart

bank

SIBS Merger Integration for HL Bank

Core Banking Replacement for MBSB

SIIBS Is lamic Banking System for a

Malays ia BankSi lverlake Card System for a large

credit card issuers in Thai landSi lverlake Providend Fund System for a

new customer in GhanaSoftware and services contract

expans ion for an exis ting customer

SIBS for Union Bank

EPP Solution for HL Bank Source: Company, Phillip Securities Research *Recent contract (July 2013) from Bank Rakyat to implement a new Internet Banking system not included in above chart.


Page | 17

Fig 4. Overview of Silverlake Axis Integrated Banking Solution (SIBS)

Source: Company

Fig 5. Overview of Silverlake Axis's PROFIT system

Source: Company


Page | 18

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Page | 19

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