CTOS has acquired an additional 2.65% in Business Online PCL (BOL) for a fair price of RM26.8m (FY20 PER of ~44x vs. peers’ 40x). The faster-than-expected acquisition, alongside plans to tap into new sectors with tremendous growth potential, reassures us of CTOS’ earnings growth in the coming years. Raise FY21-22E earnings by 2-4%. Reiterate OP with a higher TP of RM1.75 @ FY22E PER of 55x (from 45x) justified by: (i) market dominance in an underpenetrated Malaysia, (ii) more robust industry/company earnings growth, and (iii) scarcity premium.

Second post-listing acquisition. CTOS announced that it has acquired an additional 2.65% (or 21.74m shares) in Business Online PCL (BOL) for RM26.8m, raising its total stake to 22.65% (or 185.84m shares). BOL is the dominant credit bureau (59% market share) in Thailand. The acquisition came as a positive surprise (timing-wise) as CTOS had just completed its 4.625% acquisition in RAM Holdings (RAM) on 29 July 2021.

Fair price. The acquisition price translates to FY20 PER of ~44x, which is in line with global peers’ ~40x. We estimate BOL contribution of RM6.5-7.8m to CTOS’ FY21-22E bottom-line. The increased stake in the Thai leading credit bureau BOL (~59% market share) allows CTOS to further tap into an underpenetrated Thailand (~57% penetration vs. developed U.S. & UK’s 100%). Note that BOL’s 1HFY21 earnings are ~30% higher year- on-year.

More confident on growth. From IPO proceeds earmarked for acquisitions (RM58.7m), the group has utilized ~63% (or RM36.9m) for earnings accretive acquisitions (RAM & BOL) in <1 month of listing. The faster-than-expected acquisitions, coupled with plans to tap into new sectors with tremendous growth potential such as automotive, insurance and real estate (combined 2021-25 CAGR of 50.6%) have boosted our confidence in CTOS’ earnings growth in the coming years. Post-BOL acquisition, we estimate CTOS’ cash balances at ~RM35m with RM21.8m IPO proceeds earmarked for strategic investments. Thereafter, CTOS should be able to fund investments (~10% of net assets), without the need to raise additional capital.

Raise FY21E/FY22E CNP by 2%/4% on higher BOL contribution.

Reiterate OUTPERFORM with a higher TP of RM1.75 (from RM1.40) based on higher FY22E PER of 55x (from 45x), at a 57% premium to peers justified by its: (i) market leader status with 71.2% share in an underpenetrated market, (ii) more robust industry growth (2021-25E CAGR of 13.2%) vs. peers concentrated in developed nations such as U.S. (7.5%), and U.K. (5.3%), (iii) superior earnings growth of 50-20% (vs. peers’ 12-14%), as well as (iv) scarcity premium for an ASEAN-listed credit rating agency (where the growth potential is high).

Source: Kenanga Research - 9 Aug 2021