Better risk and reward profile. To recap, the rout in steep valuation companies due to the Fed’s hawkish stance has incentivised funds to rotate from growth to value. CTOS – which has been trading arguably at premium valuations – tracked the market trend, sliding 14.3% YTD to RM1.56 yesterday. In our view, the sharp pullback in CTOS' share price has provided a better investment opportunity as the risk-reward profile turned more attractive, anchored by the group's robust growth profile.

Overall, we remain sanguine on CTOS ' long-term prospects given the vast growth potential in the ASEAN Credit Reporting Industry. According to IDC, the ASEAN Credit Reporting Industry is expected to register a much faster growth rate than developed countries (ASEAN: +13.2% vs U.S:7.5% and UK:5.3%), driven by increasing demand for credit in ASEAN and low penetration in the credit reporting industry. Being the leading regional credit bureau in the ASEAN, with a presence in Malaysia and Thailand, we believe CTOS is well-positioned to capitalize on the growing credit demand, reflected in our 18% FY23-24E EPS CAGR.

The growing importance of e-KYC. We reckon the e-KYC solution is getting crucial and gradually becoming a necessity alongside the digitization of the financial sector that now allows people to open an account or apply for a facility from anywhere, anytime, without going into a physical office as e-KYC will enable authorities to undergo verification digitally and fast without the need of physical documentation. This demand is further boosted after Southeast Asia countries such as Malaysia and Thailand rush into the digital bank race to tap into the under-developed market. Given digital bank's agile yet strict credit assessment properties, we are upbeat about CTOS' credit management solutions over the long term.

Trading on critical support area. Technically, CTOS has been hovering above the RM1.51-1.56 critical support area. A decisive breakout above RM1.63 hurdle will indicate an end of the consolidation, and a new uptrend leg had happened that will spur the prices toward RM1.67-1.72-1.79. Cut loss at RM1.43.

Source: Hong Leong Investment Bank Research - 18 Apr 2022