Logistics BPO Margins to Improve
The author is an analyst of KB Securities. He can be reached at joonsop.analyst@kbfg.com. -- Ed.
Maintain BUY and TP of KRW225,000
We maintain BUY and TP of KRW225,000 for Samsung SDS. Investment points include improvement in earnings at IT Services and growth at Logistics BPO. We see IT Services earnings improving on the back of growth in the cloud computing segment, as well as booming business for ERP implementation/operation. Profit margins are also improving thanks to increasing revenue from non-affiliates via Cello Square (online logistics platform).
1Q22 results beat consensus by wide margin
Samsung SDS posted 1Q22 revenue of KRW4.19tn (+36.9% YoY) and OP of KRW273.5bn (+26.0% YoY), beating our estimate (KRW3.82tn revenue; KRW241.1bn OP) as well as consensus (KRW3.75tn revenue; KRW229.7bn OP) by a wide margin. By business division, results for both IT Services (KRW1.45tn revenue; KRW208.9bn OP) and Logistics BPO (KRW2.74tn revenue; KRW64.6bn OP) beat our estimates (KRW1.4tn revenue, KRW199.1bn OP for IT Services; KRW2.42tn revenue, KRW42.1bn OP for BPO Logistics). Logistics BPO, in particular, benefited as business from non-affiliates (i.e., Cello Square) increased.
Top-line growth to continue, thanks mainly to Cloud and ERP (SI)
Wage negotiations may force 2Q22E OP for IT Services from falling short of expectations. However, we see top-line growth fueled by the cloud and ERP (SI) segments bolstering profit margins. Revenue for the cloud business increased 11.7% QoQ in 1Q22, and we expect such growth to contribute to overall top-line growth for IT Services.
Logistics BPO margins to improve on growth in revenue from non-affiliates
Of note, Logistics BPO saw the proportion of revenue from non-affiliates (KRW458.0bn, +60% YoY) reach 16.7%. Revenue from non-affiliates (i.e., Cello Square) has increased amid soaring logistics costs resulting from the shortage of transportation and jumps in oil prices following the outbreak of COVID-19. Samsung SDS has announced plans to launch services in China in May and in Southeast Asia in 2H22. Such market forays should further boost Logistics BPO revenue from non-affiliates.