Dismal 2Q09 results. Silverlake Axis Limited (SAL) reported a pretty dismal set of 2Q09 results last week, with revenue down 67.5% YoY at MYR16.3m. As expected, the twin blow of the financial crisis and economic slowdown has led to a drastic cutback in financial institutions' IT spending. We understand that SAL has only been able to win contracts for minor upgrades - most have put their major upgrades on ice. And because of the sharp revenue fall, net profit also tumbled 73.4% YoY to MYR11.8m. 1H09 revenue (-73.4% YoY at MYR28.6m) met only 28.6% of our FY09 forecast, while net profit (-79.9% at MYR15.4m) was just 24.6% of full-year estimate. SAL declared an interim dividend of 0.3 S cent (versus 1.5 S cents in 1H08), payable on 20 Mar.

Sequential improvement but overall tone still cautious. On a sequential basis, revenue was actually up 32.7% QoQ, while net profit jumped 224.3%. In terms of segments, its SIBS Licensing grew 160.3% QoQ (-73.9% YoY), followed by Customised Software Solutions, which rose 20.4% QoQ (-61.1% YoY). Maintenance Services inched up 9.0% QoQ (-21.9% YoY), while Software/Hardware Products tumbled 98.4% QoQ (-97.1% YoY) due to some timing delays in revenue recognition. But overall, it may be too early to say if the worst is over; management continues to expect the trend oftemporary delays in finalizing IT agreements to persist for the rest of FY09, given that economic sentiment is still expected to remain cautious.

2H likely better than 1H. SAL is still in talks with several customers for major upgrades of their core banking systems, although the timeline for winning these contracts remains unclear. Nevertheless, SAL believes it should be able to secure at least one major contract in 2H09, but even if it does not, management is confident that it will do better in the second half as the small contracts are still coming in.

Slashing FY09 estimates. Given the still uncertain economic environment, we now assume a bear case scenario i.e. no major contracts in 2H09 and a modest recovery in FY10. As such, we pare our top and bottomline estimates for FY09 by 41-49% and FY10 by 34-35%. Hence even as we push forward our valuation from 8x FY09 to blended FY09/FY10F, our fair value drops to S$0.12 from S$0.19. We retain our HOLD rating as SAL is committed to continue paying out dividend in 2H09 (expected 7.7% yield).