CGS-CIMB ups TDCX’s target price to US$6.60 after privatisation offer

While the proposal is non-binding in nature, analysts Ong Khang Chuen and Kenneth Tan see that a deal is likely.

CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have kept their “hold” call on TDCX but with a higher target price of US$6.60 ($8.76) from US$6.20 previously. The analysts’ target price is the same as the price offered by the company’s founder and CEO Laurent Junique.

Junique had made a preliminary non-binding proposal to the shareholders of TDCX, a Singapore-based but NYSE-listed company where he will acquire the remaining shares he does not own and take the company private thereafter. Junique owns 86.1% of TDCX’s outstanding shares currently, representing 98.4% of the aggregate voting power.

“The offer price of US$6.60 per share implies 5.2x FY2024 EV/EBITDA, which we note is slightly below the valuation of its closest peer TaskUS which is currently trading at 6.1x or CX (customer experience) peers’ average 6.8x,” write Ong and Tan in their Jan 4 report.

“Recall TDCX listed on NYSE in November 2021 at US$18 per share, but its share price had declined over the past two years due to slower revenue growth (dragged down by post-Covid normalisation and the efficiency drive of its digital advertising clients), and threats from generative artificial intelligence (AI) to the CX (customer experience) industry,” they add. “TDCX de-rated further vs. peers (-63% in the past year versus peer average -30%) due to its higher customer concentration risks, in our view.”

TDCX has since formed a special committee of the board to consider the proposal. They will make their recommendation with the assistance of independent legal and financial advisors. The committee will also represent the company in further discussions with Junique for more details of the proposed transaction.

While the proposal is non-binding in nature, Ong and Tan see that a deal is likely.

“Given its underperformance in share price, we think TDCX’s founder has strong motivation to take it private, making a deal quite likely. This bid is likely also made easier given his significant shareholding in the company,” they say.

For the FY2023 ended Dec 31, 2023, Ong and Tan expect TDCX to report a net profit of $114.0 million and revenue of $653.2 million.

As at 11.30am (NY time), shares in TDCX are trading 2 US cents higher or 0.32% up at US$6.33.

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