Over 40% of the top 20 largest banks in South-East Asia run this banking software including 3 of the 5 largest ASEAN super regional financial institutions. Fast growth and a high return on equity caught our eye. The deeper we dug the more we liked.
Silverlake Axis Ltd (5CP.SI SLVFF:US)
Maintenance & Enhancement Services
The first thing to notice is 62% of their revenue comes from maintenance and enhancement services which are more likely to be recurring in nature compared to new sales.
This segment is highly correlated to the installed base of our software and the duration of maintenance contracts are typically for a period of up to five years and are recurring in nature. The Group’s installed base continues to grow with the completion of the Thai contracts and the securing of the two large Malaysian contracts in FY2018. Furthermore, with the challenge posed by digital banks and new fintech players entering the market, our existing customers are responding by deploying new customised digital solutions quickly and for such deployments, they require our enhancement expertise. With our strong partnerships with ASEAN’s leading banking institutions, the Group is optimistic of increasing its market share.
License fee is highly dependent on the securing of new contracts from existing and new customers and the Group is at various stages of pursuing contracts in Thailand, Indonesia, Sri Lanka and Malaysia.
The Group is cautiously optimistic while acknowledging the slower growth in many countries in Asia as a result of the ongoing trade dispute between the United States and China. I would think China's preparedness to bully countries like Australia for asking for a W.H.O investigation related to the Covid-19 outbreak introduces more risk and uncertainty. Plus we have the ongoing Hong Kong situation to keep an eye on.
Software Project Services
Both project services and licensing are highly correlated and the Group is well positioned to capitalize on developments in ASEAN relating to banking consolidations and the introduction of digital banks.
Insurance Processing - Software-as-a-Service (SAAS)
The insurance processing business focuses on providing cloud computing Software-as-a-Service collaborative platform for:
- policy administration,
- claim processing, and
- data analytics
For faster processing, improved efficiency and easier performance evaluation, the insurance ecosystem connects:
- loss adjusters,
- parts suppliers,
- direct corporate clients, etc.
I expect this ecosystem will benefit from a "Network Effect" as it grow. The more participants using the ecosystem, the more valuable it will become.
Secure Identity and Payments
Software solutions for the issuance and verification of:
- digital identity documents
- financial smart cards
- citizen and customer identity management
- biometric enrolment
- document and document holder biometric verification
- document and card personalisation and issuance
- mobile and multifactor user authentication and payment, and
- Public Key Infrastructure applications.
Successfully implementation of projects in more than 45 countries across the world including Europe, Asia, Africa and Latin America for governments, banks and financial institutions.
Digital identity and security technologies are natural additions to our capabilities to accelerate digital enterprise transformation in areas such as customer on-boarding, customer engagement, payments, anti-money laundering, fraud prevention and cyber security.
Shareholdings in public companies
Silverlake also owns significant shareholdings in 2 public companies that it could presumably liquidate at some stage in the future either to grow the company or reward shareholders
- Global Infotech Co., Ltd. (300465.SZ) Silverlake owns 8.2% of Global Infotech worth about USD$63 million.
- Finzsoft Solutions Limited (FIN.NZ) Silverlake owns 42% of Finzsoft worth about USD$6.5 million
When you think Silverlake Axis has a market cap of about USD$500 million, these 2 shareholdings account for 14% of its value and if they were sold, I do not think it would adversely effect the financial performance of Silverlake.
Strong growth rates, low debt, high return on equity (ROE) - we definitely liked what we saw here and added Silverlake Axis Ltd (5CP.SI SLVFF:US) to our portfolio.
The only other exposure our portfolio has to the banking sector is Discover Financial Services (NYSE: DFS) which owns the PULSE payment network and Diners Club.
Not Investment Advice
As always, this is not Investment Advice. Do your own research. Consult your professional advisors.