What's new?
The Deloitte Report (DR) to review Silverlake's related party transactions and the silverlake private entities was released yesterday evening. The report found no impropriety with regards to the related party transactions and these transactions were in accordance with statutory and listing requirements and beneficial to Silverlake.
Our initial take
1 ) There should be a positive reaction tomorrow as the report was delayed and there were some initial speculation that were more issues or problems surfacing. However, DR has confirmed there is no impropriety in their review. However, DR did indicate that the valuation that Silverlake paid for the acquisition of QR (retail solutions provider) was on the high end and "QR has not been a strong performer".
2) longer term, the DR has proposed some steps to be taken to address and improve transparency (such as establishment of a sub contractor prequalification process). Assuming the group adopts these proposals and perhaps relook at it'd complex corporate structure, we think there could be a gradual rerating.
3) In terms of potential catalysts ahead, i think the major shareholder will need to consistently engage the investment community. Otherwise, we also need to see more evidence of banks spending on IT upgrades before a further rerating as banks have been quite cautious on major upgrades. Also, another potential catalyst is upside surprise from its China associate and it's insurance segment.
We maintain our Hold pending more information and a DCF based target price of $0.66. This assumes a 6% discount rate, which include an additional 1ppt to reflect a higher risk premium. Should the group regain investor trust and the 1ppt risk premium is removed, the target price for Silverlake rises to S$0.77.
Source: UOBKH