Investment Highlights

• We maintain BUY recommendation on CTOS Digital Holdings (CTOS) with an unchanged SOP-based fair value (FV) of RM1.80/share. We ascribe an unchanged 4-star ESG rating, which adds a 3% premium to our FV.

• Our FY23F-25F earnings are maintained as we deem CTOS’ 1HFY23 results as within expectation with 1HF23 core net profit of RM46mil accounting for 44% of both our full year forecast and consensus. We anticipate a stronger 2H2023 on better product mix with new account activations and improving contributions from associates.

• YoY, 1HFY23 revenue rose 37% mainly due to robust growth from all business segments. Key accounts (+61%) and direct-to-consumer (D2C) (+53%) were mainly driven by strong demand for digital solution and comprehensive portfolio review/analytics services. 1HFY23 net profit also improved by 21% YoY mainly due to better product mix and higher profit share from associates.

• QoQ, 2QFY23 net profit surged by 23% thanks to higher share of profit from all associates which surged 3x to RM7mil as well as lower effective tax rate of 19% vs. 24% in 1QFY23.

• Moreover, we continue to hold a positive outlook on the stock, owing to CTOS' multifaceted approach to driving future earnings growth. The company's expansion into new verticals and the strategic utilisation of recent acquisitions to maximise synergies are expected to contribute significantly. Additionally, CTOS is wellpositioned to capitalise on emerging trends in digital banking and financial services.

• CTOS continues to focus its growth on key account segments by increasing adoption of digital solutions for 12 new clients which were onboarded in 2QFY23. The group also successfully secured another key credit transformation project with retail loan origination system (RLOS) in collaboration with Alliance Bank.

• CTOS also plans to concentrate on its D2C and commercial - international segment, employing digital channels, social media, campaigns and various activities to enhance awareness and attract more registered users.

• With the growing demand for data and analytics services, driven by individuals seeking to understand their CCRIS and credit scores, the company is poised to benefit further from this trend.

• The stock is trading at an undemanding 29x FY23F PE, below its historical average of 38x since listing in July 2021.

Source: AmInvest Research - 28 Jul 2023