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JP Morgan upgrades TDCX to 'overweight' with lower TP of US$7.40

In contrast to market expectations, JP Morgan analysts continue to anticipate earnings growth for TDCX.

JP Morgan analysts Ranjan Sharma, Sigrid Qiu and Aishwarya VR have upgraded New York Stock Exchange-listed TCDX to “overweight” with a lower target price of US$7.40 as the company prices in business continuity risks from generative artificial intelligence (GenAI).

In their Oct 29 note, the analysts highlight that customer experience (CX) companies such as TDCX appear most at risk from GenAI. As a result, CX companies appear to be trading at distressed levels at 2024 EV/ebitda of about 4.5x versus global financial crisis low of 2.6x and business process outsourcing sector at 9x, according to Bloomberg data.


JP Morgan believes the CX industry will likely face headwinds from price deflation and automation arising from GenAI. However, with only approximately 27% of the CX workloads outsourced in Asean, the analysts expect the CX industry to see more outsourcing driven by price deflation, productivity gains and specialised workloads of GenAI — offsetting the negative impact of price deflation and automation.

Meanwhile, with conflict in the Middle East as well as rising concerns on social media content, the analysts think content moderation intensity is likely to rise which should benefit TDCX. For example, Vietnam has stated that TikTok is “failing to effectively block content that violates the law”. Malaysia, on the other hand, has said it could take legal action on Meta over harmful content.

The analysts have reduced TDCX’s 2023 and 2024 revenue estimate and net income forecasts by 6% and 17% respectively on the back of macro factors and impact to consumer spending.

“In contrast to market expectations, we continue to anticipate earnings growth for TDCX and forecast earnings to grow 30% over 2023 to 2026. This is underpinned by TDCX’s efforts to diversify its customer base, continuing hiring and geographic expansion and potentially higher outsourcing,” the analysts add.

Shares in TDCX closed 21 cents lower or 4.42% down at US$4.43 on Oct 27.

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