CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have slashed their target price on Singaporean digital customer services provider TDCX by 23% on slower growth assumption on macroeconomic headwinds.
The Singapore-headquartered company provides digital customer service and marketing to technology firms and blue-chip companies.
In an Aug 24 note, Ong and Tan are maintaining “add” on TDCX but with a lower target price of US$13.80 ($19.21) from US$18 previously.
That said, Ong and Tan have nothing but praise for TDCX. The company’s core net profit of $30 million for the 2QFY2022 ended June, which was up by 36% y-o-y, was in line with CGS-CIMB’s expectations but ahead of the market, with 1HFY2022 core net profit making up 49% and 56% of CGS-CIMB and Bloomberg consensus forecasts respectively.
Listed on the New York Stock Exchange (NYSE), TDCX saw revenue growth across key client verticals in 2QFY2022.
2QFY2022 revenue grew to $162 million, up 23% y-o-y, with sales and digital marketing (SDM) segment leading growth at 54% y-o-y.
See also: PhillipCapital lowers TDCX's TP to US$15.76 due to slower overall growth
“Despite social media companies painting a cautious outlook on the digital advertising space, TDCX reiterated confidence in both its FY2022 revenue and margin guidance,” note the analysts.
Revenue growth across key client verticals
TDCX saw double-digit revenue growth y-o-y in its digital advertising vertical in 2QFY2022, notes CGS-CIMB. “The increasingly competitive environment led key clients to expand their SDM campaigns to drive sales, which offset the lower volumes flowing through TDCX’s omni channel customer experience segment.”
See also: PhillipCapital initiates 'buy' on TDCX with a TP of US$22
Meanwhile, the travel and hospitality vertical recorded 25% y-o-y revenue growth in 2QFY2022, benefiting from global travel recovery. “We expect further improvement ahead, and think North Asia border reopening offers potential upside. Fintech, TDCX’s third-largest client vertical, is also scaling further with three client additions during the quarter,” write Ong and Tan.
Logo wins triple
TDCX added 15 logos in 2QFY2022, leading 1HFY2022 total wins to more than triple y-o-y.
According to Ong and Tan, notable wins include a leading regional airline, as well as one of Southeast Asia’s largest integrated car e-commerce platforms. “With 60 active clients (up 40% y-o-y) as of end-1HFY2022, TDCX has diversified its revenue concentration away from its top two customers.”
The top two customers contributed 57% of 2QFY2022 revenue, down from 63% in 2QFY2021. “We project TDCX to see 15% and 18.5% revenue growth in 2HFY2022F and FY2023F respectively, as new clients typically take time to scale up campaigns,” write Ong and Tan.
‘Undemanding valuation’
Despite near-term headwinds, Ong and Tan believe structural trends remain intact for TDCX, as outsourcing remains the preferred way for new economy companies to grow.
See also: TDCX CEO Laurent Junique taps demand for digital services
“We think current valuation of 4.5x FY2023F EV/ebitda is undemanding given TDCX’s recurring revenue model and highly cash generative business. Our FY2022-2024F earnings per share forecasts are lowered by 1.7%-8.8% to factor in slower growth assumptions on macro concerns.”
CGS-CIMB’s target price is now pegged to 11.9x EV/ebitda growth-adjusted compared to the peer group, down from 14.6x.
“Re-rating catalysts include North Asia border reopening accelerating travel recovery or earnings-accretive M&As. Key risks include economic uncertainties slowing down order wins,” writes Ong and Tan.
Shares in TDCX closed US$1.28 higher, or 18.16% up, at US$8.33
