TDCX Inc. Near-term pain expected

13 Mar 2023
  • 4Q22 results were in line with expectations. FY22 revenue/PATMI was at 100%/97% of our FY22e forecasts. Earnings were hurt by S$6mn FX loss on cash and receivables.
  • 14% YoY revenue growth driven by double-digit growth in the digital advertising vertical, overall net revenue retention rate of 117%.
  • EBITDA margin declined 8% due to over-hiring and continued investments to support business growth. Soft FY23e revenue guidance of 3-8% YoY growth.
  • We cut FY23e revenue/EBITDA estimates by 8%/16% to reflect ongoing macro challenges with clients reducing headcount, and a contraction in margins due to continued expenses to support business expansion. TDCX’s ability to generate healthy cash flows is intact – net cash from operations grew 59% in FY22. Long-term tailwinds in the expanding BPO market should also benefit TDCX. We maintain an ACCUMULATE recommendation with a reduced DCF (WACC 10.4%, g 3%) target price of US$12.10 (prev. US$14.80).

 

 

The Positives

+ Revenue growth driven by digital advertising vertical. TDCX’s 4Q22 revenue grew 14% YoY, driven by a double-digit growth from clients in the digital advertising and media vertical – 54% of total revenue. The company’s second largest vertical – travel & hospitality, also saw strong 26% YoY growth with travel rebounding globally. TDCX’s net revenue retention rate was at 117%, demonstrating a healthy incremental revenue pipeline from existing clients.

 

+ Expansion over last 2 years starting to bear fruit, reduction in revenue concentration risk. TDCX’s expansion into 7 new geographies over the last 2 years is starting to pay off, with clients added from this expansion contributing ~10% of revenue growth in FY22e. For 4Q22, TDCX added 10 new clients, and also launched 12 new client campaigns, increasing its total client campaign count by 62% YoY. In addition, these new clients aided in reducing the overall revenue concentration risk of the company, with its top-2 clients as a percentage of total revenue down 700bps to 52%.

 

The Negatives

– Soft FY23e guidance due to limited visibility. Macro uncertainty continues to impact client headcount requirements in the near term, with the digital advertising vertical affected the most severely. As a result, expected volume flattening from clients in this vertical (58% of total revenue) dragged down FY23e revenue guidance.

 

– Margins declined due to combination of over-hiring and continued investments to support business growth. 4Q22 adj. EBITDA margins contracted 830bps from 4Q21 to 26.5% as a result of over-hiring in anticipation of volume growth that did not materialise, and increased costs to support continued business growth.

About the author

Jonathan Woo
Research Analyst
PSR

Jonathan covers the US technology sector focusing on internet companies. Formerly a national and professional athlete, he graduated from the University of Oregon with a Bachelor’s Degree in Social Sciences.

Latest Reports

Join Events & Seminars

Learn best practices and latest market outlook from experts and special guests

Hear & Ask our Experts

Join live weekly market calls

Read Popular News & Reports, Technical Pulses

at www.stocksbnb.com

Subscribe to our YouTube Channel

New video every week

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com