4Q21 core PATAMI of RM13.5m (-11% QoQ, -4% YoY) and FY21 core PATAMI of RM60.1m (+32% YoY) came in well within our expectations but beat consensus full-year estimates by 10%. While we note that the group suffered headwinds from the CCRIS suspension from 1 Oct 2021 till 17 Nov 2021, the group continued its strong showing for the quarter due to increased contribution from most of its core business divisions (Key Accounts and Commercial segments). We make no changes to our earnings forecasts, pending completion of the corporate exercises. Maintain BUY with an unchanged DCF-derived TP of RM2.45 (discount rate: 5.9%; TG: 3.5%).

Within ours but above consensus. CTOS reported a 4Q21 core PATAMI of RM13.5m (-11% QoQ, -4% YoY) and FY21 core PATAMI of RM60.1m (+32% YoY) came in well within our expectations (104%) but beat consensus full-year estimates at 110%. FY21 core PATAMI was adjusted for: (i) losses of RM0.6m from CIBI and CTOS SG that has been carved out from the group; (ii) interest expense of RM5.6m on bank borrowings prior to the group’s listing; (iii) RM1.1m of acquisition costs; (iv) unrealised forex loss of RM4.4m; and (v) RM5.4m of income tax adjustments.

Dividend. DPS of 0.33 sen/share was declared in 4Q21 (YTD: 1.18 sen/share).

QoQ. Core profit dipped 11% due to: (i) increased admin expenses largely from staff related costs and professional fees incurred in relation to the CCRIS access suspension; and (ii) 25% lower associate contribution which we believe stems from a weaker performance from 26% -owned Experian. While we note that the group suffered headwinds from the CCRIS suspension from 1 Oct 2021 till 17 Nov 2021, it was not reflected as the group’s Key Accounts segment still sustained revenues by +1% QoQ.

YoY. Core profit dipped marginally by 4% due to a 72% increase in admin expenses, which we believe stems from staff related costs and professional fees incurred in relation to the CCRIS access suspension.

YTD. Core profit increased by 32% due to: (i) stronger showing from all of the group’s business divisions – i.e. Key Accounts, Commercial and Direct-to-Consumer segments; and (ii) increased associate contribution, which we think largely stems from 22.65%-owned Business Online (BOL).

Outlook. We continue to like CTOS for the following reasons: (i) we believe that it is poised to ride on the bright prospects of the ASEAN Credit Reporting Industry; (ii) its position as the leading CRA in Malaysia with an estimated market share of 71.2% in 2020; (iii) its long-term relationships with its customers with over three decades of history with domestic banks and financial institutions; and (iv) the nature of its business which has an exceedingly high barrier to entry.

Forecast. We make no changes to our earnings forecasts as we await the completion of all the corporate exercises – i.e. Juris Group and the ongoing private placement.

Maintain BUY, TP: RM2.45/share. We maintain our BUY recommendation on CTOS with a DCF-derived TP of RM2.45/share (discount rate: 5.9%, TG: 3.5%). This implies a FY22F P/E of 74x, which is at a premium compared to its global CRA peers’ average FY22F forward P/E of 34x. We believe that the valuation premium is justified as we are expecting CTOS to grow faster than its peers, with an FY21-22F growth of 27% and 26% respectively (vs. an average of 12% and 10% for its global peers).

Source: Hong Leong Investment Bank Research - 24 Jan 2022