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analysis of CTOS Digital Bhd

Publish date: Thu, 11 May 2023, 04:46 PM
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CTOS Digital Berhad is the holding company of CTOS Data Systems Sdn Bhd, the leading Credit Reporting Agency in Malaysia. The solutions and services are widely used by the country's banking and financial institutions, insurance and telecommunication companies, large corporations, small medium enterprises as well as consumers for self-check. The three core customer segments are Key Account segment, which includes a significant number of leading financial institutions and corporates; Commercial segment, which includes a growing number of small-and-medium-sized businesses locally and international customers located across Asia Pacific and Europe; and Direct-to-Consumer (D2C) segment which are individual customers registered with CTOS ID. Key accounts contribute 38% of revenue, commercial 47%. Direct to consumer 8%. Commercial international 7%.  The company has one of the largest electronic trade reference database in Malaysia. CTOS controls a market share of 71.2% in 2020 in terms of revenue

The company is using asset light strategy, except for year 2021 the company roic and roe are above 30%, while revenue has increase from 133million in 2020 to 194million in 2022, net income has increased from 40million to 71million on the same period. The net margin of the company is around 30% over the 3 years. In addition, the company has got strong free cash flow, the company generates about 60million free cash flow a year over the last 3 years.

The company also raised borrowings to partially fund the acquisition of JurisTech and RAM. With the acquisition of Juris Tech , the company can offer the best-in-class credit data, software solutions, and analytics services to bring to the market a stronger end-to-end digital lending solution proposition, establishing itself as a one-stop solution for financial institutions. Raising stake in RAM will be the focus to work closely with RAM to strengthen its capacity to develop innovative products and solutions designed particularly for SMEs. This will provide more impetus for the growth of SMEs and support their efforts to access growth capital. It is the intention to help grow the SME industry in Malaysia, which forms the backbone of our economy.

Currently, company PE ratio is about 46, if using PEG ratio with the revenue growth of 21 percent a year, this seems to be expensive. However, the company is the market leader in this industry with the acquisition strategies to drive the growth of the company. Do you think that it is worth to buy this company at the current price?

Disclaimer: This information is intended for educational purposes only. It shall not be understood or construed as, financial advice. It is very important to do your own analysis before making any decision

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Raymond Lim, CFA

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