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Silverlake Axis Ltd’s Latest Earnings: What Investors Should Know

Silverlake Axis Ltd (SGX: 5CP) reported its fiscal third-quarter earnings yesterday evening. The reporting period was for 1 January 2015 to 31 March 2015.

As a quick introduction, Silverlake Axis is a software solutions provider to primarily the banking and financial services sector. The company’s major business segments include software licensing, software project services, and maintenance and enhancement services.

You can read more about Silverlake Axis in here or catch up with the firm’s first-quarter’s earnings here.

Financial highlights

Here’s a rundown on the latest financial figures:

  1. Quarterly revenue for Silverlake Axis rose by 5% on a year on year to RM143 million.
  2. Quarterly net profit attributable to shareholders, though, had powered ahead with a 22% jump to RM76.6 million. The company benefited from lower cost of sales and a higher contribution from other income (foreign currency gains). This was partially offset by sharply higher administrative expenses.
  3. Consequently, earnings per share (EPS) increased from 2.80 Malaysian sen per share in the third quarter of 2014 to 3.41 Malaysian sen per share in the reporting quarter – that’s an increase of 22%.
  4. For the third quarter of 2015, cashflow from operations was RM86.5 million with capital expenditures clocking in at just RM111,511. This gave Silverlake Axis a solid RM 86.4 million in free cash flow for the reporting quarter, up from RM75.84 million in free cash flow a year ago.
  5. The board of directors also proposed an interim dividend of 1.1 Singapore cents per share, an increase of 10% over the previous corresponding period. Silverlake Axis’ dividend payout for the first nine months of the financial year would be 3 Singapore cents per share, 11% higher than the dividend of 2.7 Singapore cents per share seen a year ago.
  6. As of 31 March 2015, Silverlake Axis had about RM275 million in cash and equivalents and around RM3 million in debt. That’s a strong balance sheet, but it’s slightly weaker from a year ago when there was RM338 million in cash and equivalents and around RM4.23 million in total borrowings.

In short, we had slower revenue growth for the quarter, but faster profit growth from Silverlake Axis. The software system outfit ended the quarter with a solid balance sheet and also managed to churn out positive free cash flow.

Finally, the board of directors also proposed a bonus share issue of ordinary shares on the basis of one new bonus share for every five existing shares held.

Operational highlights

On the business segment front, majority of Silverlake Axis’s revenue increase came from the 70% increase in sales from the maintenance and enhancement services business segment; the segment brought in revenue of RM91.1 million for the quarter.

This was offset by revenue drops in the software licensing and sale of software and hardware products which fell 35% and 80% respectively. For the quarter, the software licensing and sale of software and hardware products had clocked RM25.6 million and RM4.6 million in revenue, respectively.

The change in the revenue mix mentioned above resulted in a shift to higher margin business segments and hence, the lower cost of sales.

Dr. Raymond Kwong, Group Managing Director of Silverlake Axis, added the following comments in the earnings release on the company’s outlook:

“Besides expansion through Mergers and Acquisitions, it is also important for regional banks to entrench their foothold by competing effectively in the digital ecosystem for customers through constant investment in digital and mobile banking. Such trend will provide us with steady business opportunities in North East and South East Asia.

As we pursue new business opportunities, the Group will continue to place priority on the successful execution of the software implementation projects on hand. The delivery of well-executed contracts will lead to customer retention and expansion of the Group’s recurring income base.”

Foolish summary

At its closing price today of $1.33, Silverlake Axis traded at around 30 times its trailing earnings (based on a historical EPS of 11.7 Malaysian sen per share) with a dividend yield of around 3.7% (based on a historical dividend of 4.8 Singapore cents per share).

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.