Analysts from CGS-CIMB Research and DBS Group Research have kept “buy” on Silverlake Axis, despite lower-than-expected net profit reported for the 3QFY2021 and 9MFY2021.

The financial software provider reported net profit of RM38.7 million ($12.5 million) for the 3QFY2021 ended March and net profit of RM106.2 million for the 9MFY2021, both of which stood below expectations.

On this, CGS-CIMB’s Ong Khang Chuen and Andrea Choong have lowered their target price to 31 cents from 33 cents, still pegged to 14.2 times price-to-earnings (P/E), and 0.75 standard deviation (s.d.) below Silverlake Axis’ 10-year historical average.

Ong and Choong have also cut their earnings per share (EPS) estimates for the FY2021 to FY2023 by 5.7% to 9.1% as they factor in a slower pace of project completion.

DBS’s Ling Lee Keng has also lowered her target price to 33 cents from 36 cents previously, which is pegged to Silverlake Axis’ average P/E of 18 times on FY2022 earnings.

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SEE:Silverlake Axis reports 51% higher earnings for 3QFY21

In comparison, global peers are trading at average forward P/E multiples of 25.9 times and 22.9 times over the next two years.

Ling has similarly reduced her earnings estimates for the FY2021 and FY2022 by 11% and 15% to account for lower revenue projections.

That said, Ling deems the stock’s valuations as “attractive” as it is trading at 13.8 times and 13.4 times on FY2021 and FY2022 earnings respectively, below its two-year average forward P/E of 18 times and at a 50% discount to its global peers.

“A 40% payout supports [a] dividend yield of 3%,” she says.

The analysts from both CGS-CIMB and DBS remain positive on the counter due to its positive order win updates.

Silverlake Axis shared that it has secured RM74 million worth of deals in the 3QFY2021, bringing year-to-date (y-t-d) wins to RM225 million, compared to the RM220 million in the FY2020.

“Product strategy has demonstrated some early success, with the booking of first DPS Digital upgrade contract (Silverlake Axis has announced end-of-life for one of its existing products by end-2023, which opens up order opportunities of RM100million-150million),” write Ong and Choong in a May 12 report.

Mobius, the company’s new cloud-based core banking system, has seen active enquiries, with its first order win from a tier-one bank in the region.

Silverlake Axis is also engaged with several banking prospects in Malaysia, which could “open up [the] potential for future order wins,” say Ong and Choong.

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For DBS’s Ling, she likes Silverlake for its “high recurring revenue contribution of at least 60% of total, and impressive gross margin of 60%. In 9MFY2021, recurring revenue formed 83% of total revenue”.

Potential catalysts, according to Ong and Choong, include major core banking contract wins, though they expect a continued recovery in the company’s earnings in the coming quarter, riding on a stronger order backlog.

To Ling, she expects smaller contracts to “fill the gap” while waiting for larger order wins to come in.

“We remain optimistic on Silverlake Axis’ business given its market leader position in core banking solutions segment. Digitalisation has now become a necessity instead of something good to have. The Maintenance & Enhancement and Insurtech divisions are expected to continue expanding to generate a healthy increase in recurring revenues,” she says.

As at 1.03pm, shares in Silverlake Axis are trading flat at 24 cents, or 2.3 times P/B, according to DBS’s estimates.