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Silverlake Axis Limited Banks in Higher Profits

Silverlake Axis Limited (SGX:  5CP) recorded a 24% year-on-year rise in revenue to RM125.2 million for the second quarter of its Financial Year 2014 (2Q 2014). Meanwhile, net profit grew at a similar pace to revenue as it went up 23% to RM60.6 million in the latest quarter.

Silverlake is a leading provider of integrated back-end solutions to major financial institutions and organisations in the banking, insurance, payment, retail and logistics industries and seems to be able to be consistently profitable as it “locks” in customers by creating high switching costs.

Banks using Silverlake’s proprietary software packages may be unlikely to switch to another provider as the training and installation costs to implement new software suites from competitors may prove to be unattractive.

The company splits its revenue streams into six different business activities – Software Licensing, Software Project Services, Maintenance and Enhancement Services, Sale of Software and Hardware Products, Credit Card Processing and Insurance Processing.

The 24% increase in revenue for the quarter was mainly due to higher contribution from sale of software and hardware products, which went up more than 300% to RM3.7 million on the back of two large sales of hardware products.

Due to improved revenue and higher share of profits from associates (the latter jumped by more than 160% year-on-year from RM1.52 million to RM 4.0 million), net profit grew by 23%, as mentioned previously.

For the six months ended 31 December 2013 (1H 2014), the firm saw a 25% increase in revenue to RM226.4 million and net profit growth of 26% to RM111.7 million.

As of 31 December 2013, the company’s balance sheet remains healthy with a total cash balance of RM331.7 million while total borrowings stood at only RM17.2 million.

Silverlake’s businesses generated cash flows of RM65 million for the quarter, a rise of 90% as compared to a year ago. For 1H 2014, it brought in RM129.4 million in operating cash flow versus RM96.4 million in the previous year.

An interim dividend of 0.9 Singapore cents per share will be dished out for the quarter, an increase of 29% over the dividend of 0.7 Singapore cents per share that were given out in the corresponding period a year ago.

Dr. Raymond Kwong, Group Managing Director of Silverlake, remarked, “For the rest of the financial year, we will continue to strengthen our order book of software implementation service contracts. We are currently working to pursue new software projects and at the same time, looking to enhance our suite of business enterprise software solutions and services through selective acquisitions. This broadening range of mission critical business and technology capabilities will enable us to provide our customers operating in multi-industries with solutions to excel in a digital economy.”

Shares of the firm last traded at S$0.87 on Tuesday.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.