Dismal 4Q09 results. Silverlake Axis Limited (SAL) reported an extremely disappointing set of 4Q09 results last Friday. Revenue fell 20.1% YoY to MYR11.2m, and it was also down 25.7% QoQ. And due to the lower revenue, SAL slipped into the red with a net loss of MYR0.6m, compared to a net profit of MYR9.7m in 4Q08 and MYR0.7m in 3Q09. For the full year, revenue fell 62.7% to MYR54.8m, or about 6.8% shy of our estimate, while net profit fell 82.5% to MYR19.1m, or 11.2% short of our forecast. SAL declared a final dividend of MYR0.007/share.

Only positive from Maintenance Business. On a segmental basis, its SIBS Licensing revenue fell 78.8% YoY to MYR1.6m, though it was an improvement over the previous quarter where it did not record any sale. Software & Hardware Products fell 53.8% YoY and 98.7% QoQ to just MYR0.1m, and while Customised Software Solutions grew 125.2% YoY and 51.9% QoQ to MYR2.7m, it was from a very low base. On a slightly more positive note, its Maintenance & Enhancement Services rose 28.3% YoY and 14.3% to MYR6.5m, making up 58.8% of the 4Q09 revenue.

Earlier, SAL said it intends to use the downturn to restructure its business model i.e. moving away from the inherently lumpy licensing-based sales strategy towards a more balanced model with recurring sales making up at least 50% of total revenue.

Cautiously optimistic about FY10. As forewarned by management, the operating environment has remained challenging - any contracts would only materialize in FY10 despite the nascent increase in RFPs (Request for Proposals). SAL believes that these contracts would come from customers who have delayed their project implementation in FY09. However, due to its poor execution and continued disappointment over the past few quarters, we are a little less sanguine.

Suspending coverage. Although we had downgraded our rating to SELL in our previous report, the stock price has continued to run ahead of its fundamentals; we do not foresee a strong recovery in revenue and earnings. No doubt that the global economic environment has improved and the financial crisis has blown over, but we believe that the addressable market for its core banking solutions has also matured - we are unlikely to see much possibilities for full SIBS implementations. As such, we are suspending coverage on the stock.