Maintain BUY
CTOS’ robust PBT growth of 26% in FY21 was partially offset by higher tax rate due to pioneer tax status expiry, narrowing its core earnings growth to 16%. As a result, FY21 net profit of RM49.6m made up just 83% of our full-year estimates, but 101% of consensus. We expect a tax write back in FY22E. Additionally, the robust demand for credit assessment and higher associates profits should fuel a 43% earnings CAGR in FY21-23E. We maintain our BUY call with a lower TP of RM2.30, pegged to 2.3x PEG, which is a 10% discount to peer comparable-basket PEG multiple of 2.5x.
Results performance dragged by taxes
4Q21 core earnings fell by 7% YoY to RM12.7m, bringing the full-year earnings to RM49.6m. This made up just 83% of our full-year forecast, but 101% of consensus’ estimates. The variation came mainly from higher effective tax rate of 18% in FY21 (vs our 6% tax rate assumption) as the group conservatively booked a higher tax rate following the expiry of its pioneer tax status on 8 Nov 2021. Full year revenue/EBITDA came in more in-line with our estimates at 100%/94%. On a full-year basis, D2C revenue
grew by 45% despite the 1.5-month CCRIS service suspension on higher demand for individual credit assessment. Key Account and Commercial also grew by 13% and 5% respectively due to recovery in demand for credit facilities. Associate profits were up four-fold due to higher BOL earnings.
Fine-tuning earnings
We fine-tune our FY22-23E estimates – we assume an effective tax rate of 1.1% in FY22E as we believe the RM5.6m in additional tax expenses booked in FY21 will be written back in FY22E following a likely extension of its pioneer tax status until 2026. Other key assumptions remain unchanged. Upon imputing FY21 actual figures, our FY22E EPS is slightly raised by 1.4% but our FY23E EPS is cut by 4%.
Outlook remains robust
As loan application and trade financing activities are likely to further improve as the economy recovers, we expect demand for CTOS’ services to continue to grow. Despite having a dominant 71% local market share, penetration rate remains low within SMEs (17k accounts vs 100k potential targets) and individuals (1.5m served vs 15m working population). Additionally, we also expect the acquisition of Juris to be earnings accretive to the group, whilst enhancing its position to provide end-to-end credit lending solutions in the underpenetrated ASEAN region.