Remain upbeat; Maintain Buy
We remain upbeat on CTOS’ prospects post-briefing. The introduction of multiple new digital products could help uplift customer wallet size. Additionally, the lifting of lockdown measures would mean CTOS could garner higher new activation growth in the underpenetrated SME segment, while the emergence of digital/challenger banks provides a new growth avenue in the unbanked/underbanked segment. Maintain
BUY with an unchanged TP of RM2.30, pegged to 2.3x its PEG multiple.
FY21 recap
FY21 revenue (ex-CIBI) grew by 16% despite the setbacks coming from intermittent lockdown measures and the CCRIS suspension in 4Q21. The aforementioned factors had the biggest impact on the local Commercial segment, which nonetheless managed to eke out a 5% growth due to lower growth in new activations. The D2C segment saw the largest growth rate of 45% as registered user base grew by ~30% to 1.7mil, while implied avg revenue per account (ARPA) grew by ~11% on the back of higher conversion of paying users. Key Account revenue grew by 13%, driven by additional new customers and higher demand on CTOS VAS products i.e. eKYC, IDGuard and Comprehensive Portfolio Review. The injection of CTOS Basis (international segment) on Jan 2021 also contributed an additional 5% of total rev in FY21. FY21 EBITDA margin improved to 42.5% (FY20: 38.4%) on the back of operating leverage, despite incremental costs related to remediation of CCRIS service restoration.
Growth from higher credit awareness, new products
Our ~15% rev growth projection for FY22-23E will be supported by a combination of strong SME accounts growth (~17% per annum) and increase in wallet size of existing accounts through higher uptake rate of CTOS’ VAS i.e. eKYC, IDGuard (fraud detection), analytics, and other digital products from new verticals i.e. real estate, insurance and motor. The latter may likely support our ~10% annual growth assumption for Key Account implied ARPA, and cushion the rate of decline in Commercial implied ARPA as it expands its accounts base.
EPS growth tailwinds from other elements
We also expect the incremental RM5m in tax expense in FY21 to be written back in FY22E upon the pioneer tax status extension, possibly to be granted in 1Q22, thus arriving at our assumed 1.1% tax rate.
Additionally, a net cash balance sheet and incremental profits from Juris would also be supportive EPS growth ahead.