Brokers' take: Phillip Securities initiates coverage on TDCX with 'buy'

PHILLIP Securities has initiated coverage on Singapore-headquartered TDCX with “buy” and a target price of US$22.

The target price implies a potential upside of 50.8 per cent from the digital customer experience service provider’s Tuesday (Apr 19) closing price of US$14.59. TDCX’s shares were up 5 per cent or US$0.69 at the time.

Phillip Securities’ valuation is based on a discounted cash flow, using a weighted average cost of capital of 9.7 per cent and a terminal growth rate of 3 per cent.

The research team expects revenue growth to come mainly from TDCX’s existing new economy clients, as revenues from these new clients tend to start expanding only after around 2 to 3 years.

This growth will be "heavily supported" by tailwinds in the overall South-east Asian digital customer experience industry for new economy companies – expected to grow at a 5-year compound annual growth rate of 13 per cent.

For FY2022, Phillip Securities estimates a 25 per cent year-on-year rise in revenue, or around S$696 million, in line with TDCX’s guidance of S$690 million to S$700 million, led by strong growth across all segments and verticals.

In January 2022, CGS-CIMB initiated coverage on TDCX with "add" and a target price of US$24, representing a potential upside of 64.5 per cent. The target price also values TDCX at 18 times its enterprise value to earnings before interest, taxes, depreciation, and amortisation (EV/Ebitda), compared with peers' EV/Ebitda of 12.5 times.