1Q22: Within Expectations; Demand Recovery Amid Economic Reopening
CTOS’ 1Q22 core net profit of RM16.9m came in within our expectation, mainly
reflecting qoq stronger Malaysia and international operations, higher share of
associates’ profits, lower finance costs and smaller forex losses. With Malaysia shifting
towards full economic reopening after the pandemic peak, we expect CTOS to largely
benefit from the credit demand recovery and pent-up activations for its digital
solutions. Maintain BUY with a target price of RM1.80.
RESULTS
• Within expectations. CTOS’ 1Q22 core net profit came in at RM16.9m (+3.1% yoy, +25.2%
qoq), accounting for 21% of our and consensus’ full-year estimates. This excludes RM4.4m
in exceptional items which comprise provision of tax expenses, interest expense and
unrealised forex changes.
• Declares interim dividend of 0.325 sen. Meanwhile, the group has announced first interim
dividend of 0.325 sen, representing a payout ratio of 60% and in line with the group’s
minimum dividend policy of 60%.
• Top-line surged 12% yoy, lifted by stronger Malaysia and international operations. In
1Q22, CTOS recorded impressive revenue of RM42.7m (+12.4% yoy, +10.0% qoq), mainly
reflecting strong growth for all three business segments in the Malaysian operations as well
as stellar international operations. For the Malaysian operations, EBITDA grew 23.1% qoq
as strong demand in CTOS’ Data Systems reports and digital solutions lifted Key Accounts
and direct-to-consumer segments’ revenue growth. Meanwhile, international operations
recorded a higher segment profit (+11.7% qoq) due to higher bulk data sales.
STOCK IMPACT
• 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 and deployment of new solutions 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.
• Prospective credit growth post economy reopening to benefit CTOS. With Malaysia
shifting away from pandemic-induced disruptions towards full economy reopening, we
anticipate that the progressive economic recovery will accelerate loans growth momentum
and stimulate more commercial lending. To note, 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 international borders reopening,
which will in turn result in pent-up activations and potential income pulls 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
(CTOS has 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 a 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. As for Juristech (CTOS has
49% stake), we deem that this strategic acquisition will enhance CTOS’ ability to address the
emerging digital lending space and expect Juristech to immediately contribute to about 18%
of CTOS’ 2022F net profit post-acquisition.
EARNINGS REVISION/RISK
• None.
VALUATION/RECOMMENDATION
• Maintain BUY with unchanged target price of RM1.80, as recent share price retracement
which created a more favorable investment opportunity from risk-reward perspective. Our
target price implies a 45x 2023F PE (+0.5SD above mean). We reckoned that CTOS trading
in premium to the industry’s three-year PE mean of 37x is justifiable, given its multi-year
robust growth story and it being the direct proxy to growing demand for credit reporting in
Malaysia.