Investment Highlights

• We maintain BUY recommendation on CTOS Digital Holdings (CTOS) with an unchanged SOP-based fair value (FV) of RM1.80/share. This implies a FY24F P/E of 33x vs. average of 38x since listing in July 2021 and incorporates a 3% premium from our unchanged 4-star ESG rating.

• We are neutral on CTOS’s acquisition of 2 credit scoring companies involving: (i) a 100% equity stake in Philippinesbased Finscore Inc for USD5.8mil (RM27mil) and (ii) an 80% equity stake in PT Prime Analytics for USD0.5mil (RM2mil) in Indonesia.

• CTOS entered into a sale and purchase agreement (SPA) with Shareholders Sellers and Option Sellers to acquire a total 4.2mil ordinary shares in Fintech Platform Venture, the holding company of Finscore in Philippines. Finscore is a credit scoring company that delivers alternative data such as telco data credit scoring to unbanked/underbanked population in Philippines. The proposed SPA is expected to be completed in 4Q2023.

• Separately, CTOS has completed a share sale agreement (SSA) with CIBI Holdings to purchase 400 ordinary shares in Alt Decision, the holding company of Prime Analytics in Indonesia. PT Prime Analytics focuses in the area of risk management through the use of alternative data sources and advanced analytics technology.

• The rationale to acquire both companies are to: (i) expand CTOS’s market foothold in Philippine and Indonesia, and (ii) provide a suite of credit-related products and services in the two countries. By leveraging alternative data, CTOS is empowered to construct a more exhaustive credit risk profile for borrowers, thus facilitating a more comprehensive understanding of their creditworthiness.

• We understand that both acquisitions will be funded through bank financing, which will increase the group’s net borrowings to RM109mil in FY24F, raising net gearing to 0.2x from 0.14x of our previous assumption.

• While both companies register marginal losses currently, we lower FY24F-FY25F core net profits by 0.7%-1.2% to factor in increased finance cost resulting from higher borrowings arising from these acquisitions.

• Back in June 2020, the group acquired a majority stake in loss-making CIBI Information, Philippines’ first credit reporting agency and subsequently divested the stake before CTOS’ IPO in July 2021. CTOS also acquired a 20% equity stake in Thai-listed Business Online (BOL), the market leader of business information in Thailand in 2020 and subsequently raised its stake to 24.8% currently.

• BOL positions CTOS to expand its presence in the Thailand market by providing businesses with a wider range of business information and decision-making solutions by introducing different types of analytic services. BOL registered a 1HFY23 net profit of THB153mil (RM20mil) and currently trades at a FY23F P/E of 27x, comparable to CTOS.

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

Source: AmInvest Research - 28 Aug 2023