Singapore-headquartered digital customers services provider TDCX has tripled its client additions and with 1HFY2022 revenue in line with forecasts, PhillipCapital Research is even more bullish on the New York Stock Exchange-listed company.
In an Aug 28 note, PhillipCapital Research senior analyst Jonathan Woo is maintaining “buy” on TDCX with a raised target price of US$16.39 ($22.90), up from US$15.76 previously.
“We raise our FY2022 patmi by 9% to $96 million on widening margins, primarily due to lower-than-expected interest expenses, while keeping FY2022 revenue unchanged,” writes Woo.
TDCX recorded 15 client additions in 2QFY2022, totalling 25 for 1HFY2022. The new clients included a leading regional airline, a leading integrated car e-commerce platform, three FinTech companies and one insurance company.
New client additions drove revenue up 23% y-o-y for the quarter, and also strengthened TDCX’s leadership in the e-commerce, travel, and FinTech verticals.
TDCX also saw a 40% y-o-y increase in launched client campaigns, demonstrating an increasing ability to accelerate campaign growth, while maintaining low levels of revenue churn, notes Woo.
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TDCX is benefitting from rebound in the travel and hospitality sector in the region, says Woo. “Revenue from TDCX’s travel and hospitality vertical grew about 25% y-o-y, boosted by upward momentum in travel due to global re-opening over the summer period. Although revenue from this vertical is still about 16% shy of its pre-pandemic peak, the potential reopening of countries in North Asia does provide optimism for increasing revenue contribution in the near-term.”
Woo also notes that TDCX has been reducing expenses, leading to an expanded adjusted net margin. Stripping out share-based compensation that did not occur during 1HFY2021, TDCX managed to expand their adjusted net margins for 1HFY2022, increasing by 1.4% y-o-y, from 17.8% in 1HFY2021 to 19.2% in 1HFY2022.
Woo says: “One of the main reasons for this was a sharp decline in interest expenses as a result of the company paying off a significant portion of its short-term, and all of its long-term debt. Adjusted ebitda margins remained relatively flat y-o-y at 31%.”
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The negatives
On the other hand, Woo notes higher-than-expected tax rate due to suspension of tax reliefs in Malaysia and the Philippines. TDCX recorded an effective tax rate of about 27% in 2QFY2022, up from about 21% in 2QFY2021, mainly due to a one-off “prosperity tax” in Malaysia, and the suspension of a tax holiday in the Philippines.
Management was optimistic for the rest of FY2022F in terms of company performance, with the expectation of about 20% y-o-y revenue growth for FY2022. “Strong client additions continue to support new revenue growth, with an increasing launch rate helping to support existing client revenue growth,” writes Woo.
TDCX continues to diversify its client base, both in terms of geographic location and verticals, reducing country and sector risk significantly, says Woo. “We expect the reopening of travel in many parts of Asia to provide tailwinds for TDCX, particularly as it is the leading outsourced customer experience player in the travel and hospitality sector within Southeast Asia.”
Meanwhile, cash flow generation continues to be strong, with the company doubling its operating cash flows y-o-y to $106 million for 1HFY2022.
TDCX also remains focused on mergers and acquisitions to accelerate its growth strategy, with a healthy pipeline of potential acquisitions lined up, says Woo. “The company ended the quarter with $385 million in cash and cash equivalents.”
Shares in TDCX closed 73 US cents lower, or 7.69% down, at US$8.76 on Aug 29.
