Silverlake Axis / Goh Peng Ooi

[winston]

not vested

Silverlake Axis - Too rich valuations, downgrade to FULLY VALUED with revised TP of S$1.08

We downgrade Silverlake Axis to FULLY VALUED with revised TP of S$1.08 (Prev S$1.35).

The stock is trading at 18% premium to its global peers, which could disappear going forward in our view.

Silverlake Axis is over-reliance on related party revenues. c. 24% of SILV’s revenues in FY14 came from related party transactions, which is relatively high.

Relatively high operating margins of c.55% versus 20- 40% by large global peers, may be difficult to maintain in the long term.

In a recent article, SILV was named among Asian companies that may have engaged in irregular financial reporting in the past.

In a briefing held on 26th May, management rejected those allegations while the article has also been taken down.

Source: DBS

[winston]

vested

Why is Silverlake Axis tanking today ?

No announcement

[winston]

vested

Hand holding required!

A recent teaser on a paid subscription website named Silverlake amongst many Asian companies that could have engaged in improper or aggressive accounting.

Some of the allegations relate to transactions that are irreversible (and hence irrelevant) now. However, the posting reminded investors of the existence of
interested party transactions (IPTs) and the associated risks.

The article was taken off after Silverlake sought legal advice. In a subsequent meeting with investors, Silverlake highlighted that its IPTs have all along been
disclosed and are governed by strict mandates.

We believe its share price will remain weak until investors understand these IPTs better. We maintain our Reduce call, with an S$0.97 target price (DCF-derived, WACC 7.5%).


What Happened

A recent website posting questioned whether Silverlake had engaged in improper or overly-aggressive accounting. The more important allegations were:
1) the choice of pooling-of-interest method made for Silverlake’s acquisition of the private entities of a major shareholder, Mr Goh, in 2010 versus purchase
accounting for subsequent non Mr Goh related acquisitions;
2) increasing IPTs involving Mr Goh’s private entities and the limited disclosure; and
3) the exchange of 242m shares from Mr Goh in return for a S$70m contract with the HNA Group announced in July 2010.


What We Think

Silverlake argues that the pooling-of-interest method was prescribed by the then auditors. In any case, Mr Goh had to abstain from the voting and minority
shareholders had the choice to scupper the 2010 acquisitions then if they so decided.

As for the HNA share exchange, bear in mind that this relates to Mr Goh’s personal stake.

We think the most important concern relates to the IPTs (more information overleaf), which we understand will continue to exist.

Investors obviously need more information regarding these IPTs to help them better understand the possible risks resulting from them.


What You Should Do

We maintain our Reduce call with a DCF-derived target price of S$0.97. The key to arrest Silverlake’s share price decline could rest in greater transparency
on its IPTs and resumption of new order wins.

We also note that since 2009, cash taxes and dividends paid amounted to RM917m versus cash raised from the equity market of just RM180m (See Figure 7).

Source: CIMB

[winston]

not vested

Time: 10:50AM
Exchange: SGX
Stock: Silverlake Axis(5CP)
Signal: Support - Broken with High Volume
Last Done: $0.73

Source: UOBKH

[behappyalways]

Silverlake Axis down 24.4% on short-seller attack; trading halted
http://sgx.i3investor.com/servlets/fdnews/53336.jsp

[winston]

not vested

The Unbelievable Financial Alchemy of Silverlake Axis

http://www.valuewalk.com/2015/08/the-un ... s-razor99/

[winston]

not vested

An accounting gain from the public listing of an associate helped prop up the bottom line of software solutions provider Silverlake Axis, which reported a 1% rise in net profit for 4Q ended June 30 to RM74.7m.

Revenue for the quarter, however, slipped 8% to RM126.4m, with the drag mainly coming from software licensing, credit and cards
processing, as well as an absence of sales clocked for software and hardware products.

Silverlake Axis fall prey to short-sellers recently, after an anonymous report released last Thursday night recommended shorting the stock and raised several allegations centring on certain related party transactions.

Source: DBS

[behappyalways]

Silverlake Axis says short-seller report is "baseless and without merit"
http://sgx.i3investor.com/servlets/fdnews/53415.jsp

[winston]

not vested

Silverlake Axis (SILV SP/HOLD/S$0.635/Target: S$0.66)

More needed to address short sell report.

Downgrade to HOLD.

Source: UOBKH

https://research.uobkayhian.com/content ... 9c018587d3

[winston]

Another short-selling victim

By: FINTAN NG

Report accuses Singapore-listed Silverlake of inflating earnings

SELF-MADE billionaire Goh Peng Ooi was in the news in the past week for the wrong reasons. Goh and his Singapore Stock Exchange-listed software solutions company, Silverlake Axis Ltd, were accused of shady deals that inflated the latter’s earnings in a report that was released on the night of Aug 20.

By midday of the following day, the report, titled “The Unbelievable Financial Alchemy of Silverlake Axis”, had done its damage. According to the Singapore Business Times, the report had made the rounds of the broking houses and caused the company’s share price to fall as much as 27% in intraday trade on Aug 21. It prompted the stock exchange to query the company over the unusual share-price movement.

Silverlake Axis then asked for a halt on trading of its shares. Last Tuesday, following the lifting of the two-day trading halt, its share price tumbled further and closed at the lowest since late February 2013. Although the share price has since recovered, it closed at 56 Singapore cents yesterday, still below the 63.5 Singapore cents it was trading at on Aug 21 prior to the halt.

The 42-page report, authored by “razor99”, brazenly admits that it “may have short positions in Silverlake Axis” and could realise gains in the event that the share price decreases. It did not help that the company took some time to respond to the report’s allegations, with a statement from group managing director Kwong Yong Sin available only at midnight of Aug 25.

Goh, 61, the founder and executive chairman of Silverlake Axis, has learned a lesson from this episode. He is taking the criticism in his stride and soldiering on, in research, where his passion and interest lies.

“My character is more academic and I don’t care what others think about me. But I do take people’s criticism as an education process,” he says.

And it looks like the market is giving him the benefit of the doubt. On Aug 27, RHB Research upgraded the stock to a “buy” from “neutral” previously, with a target price of 58 Singapore cents. UOB KayHian maintained a “hold” call, with a target price of 66 Singapore cents. For the record, the report has a 29-Singapore-cent target price on the stock.

Goh pointed out that the lines of responsibility are clear within the company as the board has control over its running while he concentrates on research. He feels that it is his responsibility as a supplier and majority shareholder to develop software.

Meeting him earlier in the year, one can understand his interest in research, especially in game theory. The well-read Goh, who has a penchant for spewing a bewildering array of mathematical formulae in a conversation, is convinced that the future lies in game theory and its use to predict changes.

He jokes often about how his lieutenants prefer for him not to meet clients or fund managers, for a conversation with him can be “torturous”, as he told StarBizWeek back in April. Goh says game theory can be used to predict the changes that can affect businesses.

His preoccupation with research has resulted in a theory which he calls the Goh Mathematical Intelligence game theory or Goh (MI) for short. It is not out of hubris that the self-deprecating lad from a kampung that is now part of Butterworth names the theory after himself. He says that this theory goes beyond the Nash Equilbrium, a theory that itself goes beyond the zero-sum game of game theory. A lot of other top mathematicians are working on the idea.

For the man until recently, was largely unknown to the public, as he does not appear in the society pages. But Goh himself notes that after Forbes named him as the ninth richest Malaysian this year with a net worth of US$1.6bil (RM6.7bil), the media started to knock on his door to ask for interviews. He owns 66.56% stake in Silverlake Axis through Intelligentsia Holding Ltd and is known as Malaysia’s first tech billionaire.

Still, Goh says the company will hire a third-party consultant and engage with Singaporean stock-exchange regulators to explain the company’s side of the story. To assuage the concerns of shareholders, the company has appointed Deloitte Singapore on Aug 25 to undertake an independent review of the allegations made by “razor99”. The findings and conclusions will be published in due course.

Goh says “everything is in order” despite the extensive related-party transactions that the report accuses him, through private companies known collectively as the Silverlake group, and Silverlake Axis of conducting, which lacked clarity. The report says there are numerous red flags and ample evidence suggesting that Goh has used these related-party transactions to inflate Silverlake Axis’ reported results.

However, Goh has refuted the allegations by saying that while the structure of the private companies was complex, due to the nature of its business and the history behind it, all rules and regulations have been followed and that the listed Silverlake Axis has made proper disclosure in the corporate exercises it undertakes.

He adds that as a MSC-status company, Silverlake Axis has to ensure that its accounts are proper and in order as failure to do so will incur a big penalty such as the loss of tax breaks as a MSC-status company.

Goh says most of the profit is paid out as dividend. He says if the company posts just a paper or inflated profit, it will not be able to pay out such a quantum of dividends in cash.

On Monday, the company released its fourth-quarter ended June 30 and full-year earnings. Compared to the previous corresponding quarter, net profit was flat while revenue for the quarter slipped owing to lower contributions from software licensing, the sale of software and hardware products, and credit and cards processing.

Source: The Star