Companies Ramping up IT Investments for Digital Transformation
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
2Q21E earnings to come in line with market consensus
We maintain BUY and our TP of KRW260,000 (derived using the DCF model; based on 6.52% WACC and 1% TGR) as we expect 2Q21E OP (KRW230.5bn) to satisfy the market consensus of KRW231.1bn (FnGuide, 3m basis). We have revised down 2Q21E OP by 5.7% upon factoring in wage issues regarding IT developers. According to Edaily on Jul 8, Samsung SDS has paid 75%-100% (depending on division) of basic wages as performance bonus. OP should be up 16.9% YoY, however, thanks to the turnaround in IT Services and favorable operating conditions for Logistics BPO.
Business Solution earnings to improve amid growing demand for digital transformation
Given the unlikelihood of the COVID-19 pandemic dissipating anytime soon and the rising need for digital transformation, companies are ramping up IT investments. As such, we expect 2Q21E OP for IT Services to come in at KRW202.1bn (+9.6% YoY). With AI-based robotic process automation gaining traction as a business solution across companies, universities, and financial institutions, Brity Works (the RPA solution of Samsung SDS) has been garnering attention. For instance, Samsung Heavy Industries and Shinhan Financial Group have recently adopted Brity Works, allowing them to reduce working hours by 100,000 and 70,000, respectively (Korea Economic Daily, Jul 12). Meanwhile, Samsung SDS has also completed the set-up of an N-ERP system for its affiliate Samsung Electronics, which could pave the way for the company’s foray into overseas markets.
Logistics BPO to maintain solid results on continued uptrend in maritime and air cargo freight rates
Following a solid performance in 1Q21, we expect Logistics BPO to have maintained solid results for this quarter as well (2Q21E OP at KRW28.4bn, +129% YoY), as we see Logistics BPO, which handle logistics process for its clients, should benefit from the surge in cargo freight rates. The Shanghai Containerized Freight Index (SCFI), the representative trade index for sea freight rates, has been rising for the ninth consecutive week since May, up 280% from a year ago. 2Q21 air freight rates have also been bullish (Maeil Business News, Jun 8).