Maintain BUY

We attended an investor briefing, with the management highlighting its 3-year plan and diving deeper into the rationale for the recent JurisTech acquisition. Our positive view on the company remains intact, as the acquisition greatly enhances CTOS’ end-to-end credit lending solution and solidifies its leading position in the credit bureau industry. The acquisition is also timely as digital economy adoption accelerates in the ASEAN region. Maintain BUY with an unchanged RM2.40 TP.

Clear synergies with JurisTech

CTOS’ credit bureau-centric services complement well with JurisTech’s comprehensive software solutions, creating an end-to-end digital credit proposition (Fig1). The only clear overlap is that both have their own
analytics team, though we see opportunities for each party to leverage on their respective strengths (CTOS – portfolio analytics; Juris – AI & ML) for enhanced product output and cross-selling for better sales funnel. Management expects the acquisition to complete by 1Q22.

Juris has solid financials with path to scalability

JurisTech has an attractive business model, with 65% of its revenue being recurring, comprising of SaaS subscription fees, maintenance fees and module upselling/enhancements. Around 80% of revenue is generated from established banks and financial institutions, while >3000 debt collection and law agencies are also tied to its platform. The business is also scalable with high PAT margin in excess of 40%, and is highly cash generative with low capex needs. We have already reflected the earnings accretion from this acquisition in our forecasts (Fig 6).

A timely acquisition to ride on industry tailwinds

The acquisition of JurisTech is timely in our view, as Malaysia’s digital economy is shifting gears with the impending issuance of digital banking licenses and emergence of various fintech/challenger banks and digital moneylenders. This also provides a stronger footing for CTOS to compete regionally (Fig2). The plan to acquire additional BOL shares may see some challenges given the recent strong share price appreciation (Fig 5). However, BOL’s strength in Thai retail market remains an attractive proposition in which CTOS believes it could leverage on to expand its D2C business. We believe the set ceiling price of THB15/share may be revisited. Additionally, CTOS may also raise an additional RM29m to further increase its stake in RAM Holdings and other acquisitions (Fig4). Key risks are 1) emerging competition from smaller digital players, and 2) increasing cyber attack threats as adoption of digital economy rises.