SINGAPORE (Mar 28): RHB Research is maintaining its “buy” call on Silverlake Axis with a target price of 65 cents, while keeping the stock its country pick.

In the group’s latest 2Q19 results, earnings doubled to RM67.5 million ($22.5 million), while revenue increased by 20% to RM169.0 million, compared to 2Q18. This was mainly due to wider margins stemming from licensing revenue jumping 98% y-o-y as it continued to implement a major Malaysian contract.

See: Silverlake Axis doubles 2Q earnings to $22.5 mil; proposes second interim dividend of 0.4 cent per share

In a Thursday report, analyst Jarick Seet says, “This outperformance should continue into the rest of 2H19, which may lead to stellar results again, in 3Q19. We expect 3Q19 to be upbeat, on continued margin improvement and a positive PATMI uptrend.”

In 2Q19, the group also declared a second interim dividend of 0.4 cent per share. And management has said that it is keen on rewarding shareholders with a higher dividend yield moving forward.

The analyst also reckons that the group will likely engage in more share buyback, similar to what was done in 2018.

In addition, Silverlake has been historically forking over 80% of earnings as dividends.

“Based on its previous share buyback exercises, we expect the dividend payout ratio to be c.70% for 2HFY19, resulting in a 4% FY19F yield,” says Seet.

As at end-2Q19, the group’s orderbook stood at RM280 million, down from RM325 million in the 1Q19.

But Seet understands that the group is actively in talks with a few potential new and existing customers, as banks are now budgeting more for IT investments, especially in Indonesia and Thailand.

Silverlake is also confident in securing additional large-sized contracts by the end of 2019, especially from these countries – which should further contribute towards PATMI growth in FY20-21.

“With the improving fundamentals and strong earnings growth as of 1H19, Silverlake is on track for a robust 2019. We expect the strong earnings growth and margin improvement to continue into 3Q19 and 4Q19, as it continues to execute the large-sized Malaysian contract,” says Seet.

As at 12.35pm, shares in Silverlake are trading at 56 cents.