Brokers’ take: CGS-CIMB raises TDCX target price, sees China’s reopening as catalyst
Bernadette Toh
CGS-CIMB has raised its target price on Singapore-based digital customer experience solutions provider TDCX to US$15.50 from US$13.80, as it expects the company to record higher revenue growth despite an anticipated macro slowdown.
The higher price target on the New York Stock Exchange-listed counter comes after CGS-CIMB raised its FY2023 to FY2024 forecasts for TDCX by 1.3 per cent to 3.1 per cent on stronger growth assumptions.
This remains pegged to a 10 times enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) multiple as the brokerage rolls over its valuation base year.
In a report on Monday (Feb 6), the research house said it expects TDCX to achieve 15.6 per cent year-on-year revenue growth to S$767 million in FY2023.
The forecast revenue growth is “superior” compared with TDCX’s industry peers’, where Bloomberg consensus expects a high single-digit growth, said CGS-CIMB analysts.
With China’s border reopening acting as a catalyst in the outbound tourism recovery, the analysts said this could bode well for TDCX as travel and hospitality represents the company’s second-largest client vertical.
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They noted that TDCX’s growth rides on structural trends such as business process outsourcing, and its highly cash-generative business model.
“The current economic landscape could open opportunities for outsourcing, as it gives companies the flexibility to augment their current operations without the commitment of investing in new offices and making new hires,” said the analysts, who also noted that TDCX’s growth initiatives “continue to bear fruit”.
They also noted that the company has maintained its headcount despite recent layoffs by tech companies. This was attributed to the company’s focus on mission-critical functions and that its sales and digital marketing arm is revenue-generative for clients.
Although the analysts are expecting a softer adjusted Ebitda in FY2023 due to continued investments, they believe this slight downtrend can be offset by the normalisation of the effective tax rate to 21 per cent this year.
Overall, they expect TDCX to report a 20 per cent year-on-year adjusted earnings per share growth in FY2023.
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