Investment Highlights

• We maintain BUY on CTOS Digital Holdings (CTOS) with an unchanged SOP-based fair value (FV) of RM1.80/share, which implies FY25F P/E of 27x - 52% discount to its 5-year mean of 56x. We ascribe an unchanged 4-star ESG rating, which adds a 3% premium to our FV.

• Our FY24F-26F earnings are maintained as we deem CTOS’ 1HFY24 results as within expectation with 1HF24 core net profit of RM46.3mil accounting for 36% of both our full year forecast and consensus. We view the earnings to be within expectations as 1HFY results tend to be weaker than 2HFY results given that 1HFY23 also contributed 36% of FY23 core net profit.

• The group declared an interim dividend of 0.78 sen per share (payout: 70.7%) for 2QFY24, higher than 0.55 sen per share (payout 49.8%) in 2QFY23. This is within our expectations.

• YoY, 1HFY24 revenue rose 21.7% mainly due to robust growth from all business segments. Key accounts (+40%) and commercial (+20%) were mainly driven by comprehensive portfolio review/analytics and digital reports However, 1HFY24 profit share from associates decreased by 8.8% YoY mainly due to lower contribution from JurisTech impacted by delayed project implementation.

• QoQ, 2QFY24 net profit surged by 22.5% thanks to higher share of profit from all associates which surged 3.6x to RM6.4mil. In tandem with the higher share profit from associates, the group’s PBT also increased by 22% to RM27.2mil.

• With the Court of Appeal overturning the High Court’s decision that CTOS cannot provide credit scores last month, we continue hold a positive outlook on the stock owing to CTOS’ multifaceted approach to drive future earnings growth.

• In addition, the international business segments have begun to contribute positively towards the group’s financial performance in 2024 with CTOS set to launch its commercial international business in Singapore by appointing key personnel to secure MNC clients and capitalise on regional opportunities.

• Moreover, the group continues to integrate its established expertise with local market insights to offer a comprehensive suite of credit-centric solutions, thereby providing a competitive edge to expand its footprint in the ASEAN market.

• CTOS also plans to concentrate on direct-to-consumer (D2C) segment by engaging with 16mil credit-active consumers in Malaysia through targeted financial literacy initiatives, digital marketing campaigns and strategic partnerships to strengthen market presence and consumer trust in its products.

• The stock is trading at an undemanding 26x FY24F PE, below its 5-year mean of 56x.

Source: AmInvest Research - 2 Aug 2024