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The Unbelievable Financial Alchemy of Silverlake Axis: Razor99

On 8-20-2015, razor99 released a 42-page short-seller report on Value Investors Club and Dropbox that said Silverlake Axis Ltd. engaged in third-party transactions with private companies run by its chairman to inflate its reported results. Razor99 noted that the company's profitability was the result of significantly higher revenue per employee versus peers. It also said that the company chairman had pocketed more than RM$1.0 billion through stock sales and dividends, while minority shareholders had contributed more than RM$550 million of the company's net capital. On 8-21-2015, the company requested a halt in trading. H/T ActivistStocks

The Unbelievable Financial Alchemy of Silverlake Axis - Introduction

Silverlake Axis Ltd (SAL) is a Malaysia-headquartered and Singapore Stock Exchange-listed company which provides software solutions to the financial industry. On paper, SAL appears to be an investor’s dream, providing consistent growth, high returns, strong cash flow, and a steady stream of dividends. However, we think SAL will prove instead to be an investor’s worst nightmare, like other fraudulent IT service companies Longtop Financial (China) and Satyam Computer Services (India). When we first reported our findings on Longtop in February 2011, it was a market darling. Three months later the auditor, Deloitte & Touche, resigned and the stock was delisted soon after. We think there are a number of striking similarities between Silverlake Axis and Longtop.

Silverlake Axis’s founder and Chairman Goh Peng Ooi operates a large group of companies, collectively known as the Silverlake Group, which encompasses a complex web of murky, private companies connected to SAL, the listed entity. SAL engages in extensive related-party transactions with Goh through these private companies, and disclosure of these transactions lacks clarity. Fortunately, the Companies Commission of Malaysia requires all Malaysian companies, including private ones, to file audited financial statements which can be purchased on request (www.ssm-einfo.my). Based on our extensive research, we believe there are numerous red flags and ample evidence suggesting that Chairman Goh has used these relatedparty transactions to inflate Silverlake Axis's reported results.

Silverlake Axis reports supernormal profitability driven by dramatically higher revenue per employee compared to peers, which is the exact same red flag that existed at Longtop Financial. SAL also has loss-making related-parties which employ a large number of Silverlake Group employees. These hidden entities are undisclosed contingent liabilities to SAL. This is reminiscent of Longtop’s use of a related party to employ most of its employees. By inflating Silverlake Axis’s financial results, Goh has been able to pocket more than RM 1.0 billion (US$300 million) through stock sales and dividends, while minority shareholders have contributed more than RM 550 million (US$165 million) of net capital into SAL.

Report Outline

Section 1: Complex and Deceiving...


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