Silverlake Axis Enormous potential to grow in Asia
Story: Silverlake Axis has announced a licensing contract worth RM 25m for a Malaysian outsourcing deal.
Point: The significant size of the contract win assures us that Silverlake will achieve our 2Q08 earnings estimates. There is an upside potential to our FY08 earnings estimates, if Silverlake can secure few contracts in the Chinese market through its JV with local partner Unifisoft Holdings.
Relevance: We maintain BUY and our DCF-based (WACC 9.3%, terminal growth 1%) target price of S$0.95, which implies 19x FY08 earnings. Despite a healthy deal pipeline, due to broader concerns over the banking sector, the stock has shed about 15% in the last one month. Silverlake currently trades at 11x FY08 earnings, which is at 50% discount to IT peers in the banking sector.
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