Brokers' take: CGS-CIMB sees TDCX as a proxy for tech disruptors, initiates 'add'

CGS-CIMB on Monday (Jan 24) initiated coverage on TDCX with "add" and a target price of US$24, representing a potential upside of 91.1 per cent from the business process outsourcing provider's Friday closing price of US$12.56.

The research team's target price of US$24 values the Singapore company at 18 times enterprise value to the earnings before interest, taxes, depreciation, and amortisation (EV/Ebitda), compared to TDCX's peers' EV/Ebitda of 12.5 times.

CGS-CIMB is projecting an revenue compound annual growth rate (CAGR) of 25.8 per cent for TDCX's FY2020-22. It also estimates a FY2021-23 Ebitda CAGR of 22.7 per cent, given TDCX's faster growth profile.

Analysts Ong Kahng Chuen and Kenneth Tan also see US-listed TDCX as a proxy for rapidly-growing tech disruptors and the fast-growing digital economy - through strong "new economy" clientele such as Facebook and Airbnb. About 93 per cent of TDCX's revenue as at Q3 2021 has been derived from these clients thus far.

"These companies have large TAMs (total addressable markets) and have grown quickly but often face difficulty scaling operations, which provides outsource opportunities of key functions to TDCX - essentially a recurring revenue model with good cash flow generation," the analysts said.

Recent client acquisition momentum has also been strong - with the Singapore company adding 16 new clients in the 9 months ended 2021, compared with 9 additions in the corresponding period a year ago, CGS-CIMB noted.

TDCX provides business-process services such as omnichannel CX solutions, sales and digital marketing services and content monitoring and moderation services. As at end Q3 2021, it has operations in 10 markets around the world - with most of its staff based in Singapore, the Philippines and Malaysia.

The company listed on the New York Stock Exchange in October 2021. It sold shares at US$18 each to raise US$348 million, where some US$188 million was designated to repay a Credit Suisse facility and the remainder for growth.

READ MORE:

• TDCX expands client range in gaming, crypto; eyes acquisitions
• TDCX Q3 profit up 46.7% on strong revenue growth