CTOS Digital Berhad (Trading Buy)

• CTOS is Malaysia’s leading Credit Reporting Agency. It facilitates credit extensions by providing individuals and businesses access to crucial information. It also delivers a complete portfolio of credit risk management solutions and services that are used across various industries.

• From IPO proceeds earmarked for acquisitions (RM58.7m), CTOS has utilized ~76% (RM44.5m) for earnings accretive acquisitions (RAM & BOL), including its latest acquisition of an additional 3.5% stake in RAM Holdings Berhad.

• In FY20, CTOS saw stagnant earnings (RM39m) despite a 9% revenue growth. However, given the earnings growth momentum in 9MFY21 (+48% YoY), consensus is expecting CTOS to achieve a net profit of RM57m (+45% YoY) in FY21, with further 34% growth in FY22.

• These translate to forward PER of 68x and 51x, respectively, likely reflecting the scarcity premium for an ASEAN-listed credit reporting agency.

• Chart-wise, the stock peaked at a high of RM2.10 in October this year after almost doubling from its IPO price of RM1.10. Since then, the stock has corrected 20% to a low of RM1.68, likely on concerns on CCRIS access and of share overhang pending moratorium expiry in Jan 2022.

• Since then, the stock has found support around the RM1.73 level on numerous occasions. With the MACD indicator showing waning downward momentum and potentially strengthening upward momentum, and with the Parabolic SAR showing early signs of an uptrend, we think the stock could continue trending higher.

• On its way up, the stock could potentially challenge our resistance levels of RM1.98 (R1; 13% upside potential) and RM2.08 (R2; 19% upside potential).

• We have pegged our stop loss level at RM1.53 (or an 13% downside risk).

Dialog Group Berhad (Trading Buy)

• DIALOG is an integrated technical service provider to the upstream, midstream and downstream sectors in the oil, gas and petrochemical industry. It serves a range of customers that include multinational oil majors, national oil companies and multinational engineering and service providers around the world.

• In FY June 21, DIALOG saw a 14% decline in net profit to RM543m, dragged by a slowdown in downstream services. Despite 1QFY22’s earnings falling 12% YoY, consensus is expecting a turnaround in FY June 22, estimating a 6% growth in earnings to RM575m. Partially fuelled by new contracts, such as DIALOG’s recently announced RM360m EPCC contract from PETGAS, DIALOG is expected to achieve 13% earnings growth in FY June 23 to RM649m.

• These translate to forward PER of 24x and 21x, respectively, below its 5-year historical average of 32x.

• Chart-wise, the stock peaked at RM3.99 in May 2020, and has been trending downward since. After bottoming at RM2.31, the stock rose sharply by 32% to peak at RM3.06, but has since corrected 21% to a recent low of RM2.42.

• With the stock recently recovering from the RSI oversold territory, and with the MACD showing waning downward momentum, we believe the stock could trend higher once again.

• On its way up, the stock could potentially challenge our resistance levels of RM2.78 (R1; 12% upside potential) and RM3.08 (R2; 24% upside potential).

• We have pegged our stop loss level at RM2.18 (or a 11% downside risk).

Source: Kenanga Research - 17 Dec 2021