Diversifying Client Base
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
3Q22 review: OP of KRW185.0bn (-16.7% YoY, -31.5% QoQ)
— 3Q22 revenue came in at KRW4.2tn, beating the market consensus of KRW4.07tn (FnGuide; 3m basis) and our estimate of KRW3.93tn. However, 3Q22 OP of KRW185.0bn fell short of the consensus (KRW229.0bn) and our forecast (KRW242.8bn).
— One-off costs totaling KRW40.0bn dragged OP down well below our estimate. Yet the company did win in a lawsuit for the refund of corporate taxes levied related to its merger. As a result, costs related to the tax refund (provisions) were recognized and a tax refund of KRW164.0bn boosted NP by reducing corporate tax cost.
Ongoing client diversification focusing on cloud, non-affiliate business
— IT Service revenue came in at KRW1.49tn and OP at KRW119.7bn, missing our estimates of KRW1.5tn and KRW187.0bn, respectively.
— Cloud revenue improved 9.7% QoQ to KRW299.2bn on HPC service expansion at affiliates, app modernization at cosmetics/education companies and SaaS business.
— The economic slowdown may pose a risk by depressing IT investment. However, Samsung SDS is diversifying its client base by exploring non-affiliate ERP clients and expanding MES overseas business.
No. of digital forward clients rose despite logistics market slowdown
— Logistics BPO revenue came in at KRW2.71tn and OP at KRW65.3bn, surpassing our estimates of KRW2.43tn and KRW56.0bn, respectively.
— Despite declines in freight traffic and rates, Samsung SDS is expanding services to non-affiliate clients. In 3Q22, non-affiliate revenue slid just 2.9% QoQ despite the logistics market slowdown.
— The company has been expanding its non-affiliate client base, targeting strategic industries in North America (i.e., high-tech, auto parts).
— The no. of membership companies at Cello Square (digital forwarding) rose 66% QoQ (approx. 2,500 as of end-3Q22).