DBSVickers Report - 11 Jan 2008

Silverlake Axis Expanding into new sectors and markets

Story: We hosted Silverlake Axis at our “Pulse of Asia” conference where management sounded upbeat about the company’s prospects.

Point: There were three key takeaways from the conference.

(1) Management clarified that it has not witnessed any slowdown in Asian banks’ IT spending due to the credit crunch in the US and expects to deliver healthy earnings growth in the current year.
(2) Management highlighted the diversification of its business into non-banking financial sectors in the last six months, which should further fuel its growth.
(3) On the geographical front, management expects to secure more business from outside its traditional markets of South East Asia, particularly from China.

Relevance: We maintain BUY at our DCF-based (WACC 9.3%, terminal growth 1%) target price of S$0.95, which implies 19x FY08 earnings. Silverlake currently trades at 12x FY08 earnings, which is more than 40% discount to peers in the banking sector.