A Clear Victor In Malaysia’s Digitalisation
CTOS is well positioned to prosper from Malaysia’s transition towards the new digital
economy, leveraging on its deep-rooted database (>30 years) on local businesses, fullfledged ecosystem of credit solutions and synergies from recent strategic acquisitions.
Meanwhile, we also expect the post-lockdown full economic reopening to result in
credit demand recovery and pent-up activations for CTOS’ digital solutions. Upgrade to
BUY after a steep share price retracement. Target price: RM1.80.
WHAT’S NEW
• A clear beneficiary of the nation’s proliferation of new digital economy. Due to the
Malaysian government’s push towards a digital economy, several digital initiatives such as
the National Digital Network (Jendela), 5G rollout, Malaysia Digital Nomad programme, and
approval of digital moneylending licences have been set in motion. As CTOS Digital (CTOS)
is Malaysia’s market leader in the credit reporting segment with >70% of the total market
share and has a deep range of advanced analytic services on its platform, we deem that
CTOS will largely benefit from the digitalisation and process automation in the financial
services and other verticals.
• Poised for a stellar growth proposition in 2022-24. CTOS is poised to record a stellar
three-year net profit CAGR of 22% in 2022-24, mainly driven by: a) broadening of data
assets which will move up its value chain and deepen its share of wallets in the credit
bureau industry, b) further vertical expansion, deployment of new solutions and penetration
into other economy sectors, c) synergies and incremental revenue from newly-acquired
associates – BOL, Juristech and Basis, d) meaningful credit growth which spurs demand for
credit and risk information solutions, and e) CTOS’ distinctive advantages when combining
traditional datasets with advanced analytics.
• Share price retracement creates a BUY opportunity. We had highlighted in our previous
reports that CTOS was previously trading at lofty valuations and the rising rate environment
could exacerbate potential valuation de-rating. However, we deem that the company’s 35%
share price correction from its peak has fairly priced in the current pressure on growth stocks
in the context of funds’ rotation to value stocks. As such, we opine that CTOS’ valuations are
now more appealing and provide a better investment opportunity from risk-reward
perspectives, anchored on the group’s robust long-term growth trajectory and defensive
business nature (>60% of group revenue is recurring)
STOCK IMPACT
• Bridging the gap between digital banks and traditional banks. To recap, Bank Negara
Malaysia (BNM) is in the final stage of issuing up to five digital banking licences to qualified
applicants. Leveraging on its extensive database and already-rich ecosystem of digital
services such as electronic know-your-customer (e-KYC), CTOS is able to source the big
data and credit profiles that digital banks require in a cost-efficient manner. A
comprehensive e-KYC solution that credit bureaus like CTOS can provide is crucial as it
allows a swift but yet tight credit assessment process, providing digital banks with a greater
advantage by utilising big data and artificial intelligence to have a more robust internal credit
scoring procedure and faster customer acquisition process. Therefore, we foresee a
meaningful surge in demand for CTOS’ various credit management solutions following the
award of the digital banking licences.
• Prospective credit growth post economic reopening to benefit CTOS. With Malaysia
shifting away from pandemic-induced disruptions towards full economic reopening, we
anticipate that the progressive economic recovery will accelerate loans growth momentum
and stimulate more commercial lending. Note that BNM is forecasting a resilient 5.3-6.3%
GDP growth for Malaysia in 2022. Furthermore, we also expect meaningful expansion of
marketplace and credit demand recovery following the reopening of international borders,
which will in turn result in pent-up activations and potential income being pulled to CTOS for
its various business analytic and credit assessment solutions. Tracing this positive GDP and
loans momentum, we expect CTOS to chart strong revenue growth of 15-% in 2022-23.
• Strategic acquisitions to further fuel CTOS’ ecosystem and regional growth. To recall,
CTOS completed stake acquisitions in BOL, RAM Holdings, and Juristech within the past
three years to further enhance its position as an established multinational platform. BOL (in
which CTOS has a 24.825% stake) provides CTOS a foothold in the fast growing Thailand
market, given its significant position (59% market share) and extensive database with over
1.6m local business records. Meanwhile, CTOS’ acquisition of an 8.13% stake in RAM,
which is the market leader in Malaysian bonds credit rating, strategically expanded CTOS’
product ranges and allows cross-selling to existing customer bases.
• Recent JurisTech’s acquisition a perfect complement and will establish strong
synergies. In Feb 22, CTOS received shareholders’ approval to complete its acquisition of
49% stake in Juristech for a cash consideration of RM205.8m. To note, JurisTech
specialises in enterprise-class software solutions for most major banks and some fintech
companies in Malaysia. Juristech also has a strong financial track record and recurring
revenue streams (~65%). We deem this strategic acquisition to be value accretive and will
enhance CTOS’ ability to address the emerging digital lending space. We expect Juristech to
immediately contribute to about 18% of CTOS’ 2022 net profit post-acquisition.
EARNINGS REVISION/RISK
• None.
VALUATION/RECOMMENDATION
• Upgrade to BUY with an unchanged target price of RM1.80, following the recent share
price retracement which has created a more favourable investment opportunity from a riskreward perspective. Our target price implies a 45x 2023F PE (+0.5SD above mean). We
reckon that CTOS is trading at a premium to the industry’s 3-year PE mean of 37x, which is
justifiable given its multi-year robust growth story and it being the direct proxy to growing
demand for credit reporting in Malaysia.