3Q FY21: Results ahead

Maintain BUY, raising TP to MYR2.34

CTOS Digital 9M21 core net profit came ahead of our/consensus FY21E expectations, making up 85%/86% respectively. We remain upbeat on the overall credit bureau market in Malaysia, with CTOS’ growth potential further supported by strong market positioning and attractive verticals – reiterate BUY with higher MYR2.34 TP (vs. MYR2.17 previously) pegged to 2.8x PEG, in-line with updated global peer basket mean (2.6x previously).

Robust earnings delivery

CTOS’ 3Q21 core net profit came in at MYR15m (+16.8% YoY, +0.5% QoQ), bringing 9M21 core net profit to MYR46m ((+70% YoY), ahead of expectations at 85%/86% of our /consensus FY21 forecasts, respectively. Meanwhile, 3Q21 revenue was reported at MYR39m (+149% YoY, +15% QoQ), bringing 9M21 figure to MYR114m (+16% YoY). 9M21 core net profit margin improved to 41% (9M20: 28%).

Growth across all segments

Revenue was higher for all 3 key categories of customers (Key Accounts, Commercial and D2C), driven by growth in new CTOS Credit Manager subscribers as well as strong demand for CTOS Data Systems Reports and digital solutions. The International operations contributed revenue of MYR5m and segment profit of MYR3m in the current period following the Basis acquisition in Jan 2021. 9M21 profit growth was also driven by higher share of profits of associates of MYR4m mainly due to the contribution
from BOL Thailand – however, this was offset by higher finance costs of MYR3m and forex losses of MYR4m, mainly from its USD borrowings.

Outlook remains favorable

CTOS remains in a dominant position within the credit reporting industry, and is poised to gain from accelerated economic reopening as credit reporting demand is expected to grow from hereon, in our view. Expanding new verticals spanning real estate, automotive, telco as well as the huge demand potential that is digital banking, the latter pending award of licenses by Bank Negara, would be some of the key drivers for this growth stock. Meanwhile, application of artificial intelligence (AI) in CTOS existing multi-channel credit solutions gives it an edge against its competitors, we believe. The 3Q21 analyst briefing is to be held on 20th Oct 2021.