1Q21 Earnings Beat Market Consensus
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
Maintain BUY and TP of KRW260,000
We maintain BUY and our target price of KRW260,000 for Samsung SDS. Key investment points include the following:
(1) Revenue for IT Services and Logistics BPO has been on the rise, given increased capex and better business performance overseas by its affiliates (i.e., Samsung Electronics).
(2) Revenue from customers other than Group affiliates has been increasing as well, thanks to the surge in demand for digital transformation in the pandemic era.
1Q21 earnings beat market consensus
Samsung SDS reported 1Q21 revenue of KRW3.06tn (+25.7% YoY) and OP of KRW217.1bn (+26.8% YoY), with OP surpassing our estimate of KRW206.3bn and the market consensus of KRW195.0bn (3m, FnGuide). Logistics BPO OP (KRW32.4bn) beat our estimate of KRW18.0bn, while IT Services OP (KRW184.7bn) came in-line with our estimate of KRW188.0bn.
Logistics BPO continues to see robust results as suppliers have the advantage in the maritime logistics market
Logistics BPO received a boost in 1Q21 as an increase in seaborne trade involving IT products—whose sales have been on the rise—coincided with continued shortage of containers. Logistics BPO OP of KRW32.4bn represents a 119% YoY surge and a 2.9% rise compared to 4Q20 (high-demand season). Although the first quarter is traditionally an off-peak season for ocean freight transport, bottled-up demand up from the COVID-19 pandemic (i.e., greater-than-expected demand) as well as limited container supply has given way to a rise in ocean freight rates. As a result, shippers are turning to logistics BPO services offered by Samsung SDS.
Record-high results for IT Services thanks to market recovery
Meanwhile, robust results by IT Services indicate a recovery in market conditions. The division’s business solutions revenue in 1Q21 amounted to KRW400.7bn—its highest ever among first-quarter results. The market for IT services is showing signs of recovery from a pandemic-induced slump; smart factory projects have resumed, while demand for ERP and SCM consulting (i.e., digital transformation) among various industries has been growing.