4QFY21 core PATAMI of RM13.5m brought FY21 core PATAMI to RM60.1m, within our (101%), but above consensus’ (110%), estimates. We maintain our FY22E earnings and introduce FY23E core PATAMI of RM92.4m (+17% YoY). We also maintain our TP of RM1.85 on 55x FY22E PER, and MP call, as CTOS’ current trading levels is fairly priced, in our view, especially as market turns cautious on high-PER stocks.

4QFY21 within expectations. 4QFY21 core PATAMI of RM13.5m (- 11% QoQ, -4% YoY) brought FY21 core PATAMI to RM60.1m (+32% YoY). The results are within our expectations, making up 101% of our FY21 estimate, but beat consensus’ expectations at 110%. Consensus was too conservative in terms of margins, as consensus expected net margin of 34.5% vs actual net margin of 39%. DPS of 0.33 sen brought FY21 DPS to 1.4 sen, which we deem as within our 1.5 sen estimate.

YoY, FY21 core PATAMI rose 32% as revenue from all three customer groups grew – key accounts (+13%), commercial (+14%), and direct- to-consumer (+45%). Core PATAMI growth outpaced the 15% revenue growth on improved PBT margin improvement (+2.4ppt) due to higher share of profits from associates in spite of higher taxes during the year.

QoQ, despite its marginally higher revenue (+1%), 4QFY21 core PATAMI slipped 11%, mainly due to higher administrative expenses from higher staff costs and professional fees in relation to the CCRIS access suspension and M&A deals. Despite BNM’s suspension on CTOS’ CCRIS access (1 Oct 2021 – 17 Nov 2021), CTOS’ Malaysian revenue only dipped 1.6%, as it was cushioned by strong growth in other products.

Outlook. CTOS looks to continue fueling its growth by increasing its stake in RAM Holdings and BOL, and from synergistic acquisition of JurisTech. We believe that in 2022, management will be focusing on integrating JurisTech into CTOS, and to combine each other’s capabilities in creating end-to-end digital lending solutions. It also stands to benefit from the long-term trend of enterprises’ digitalization of customer on-boarding process.

Maintain FY22E, introducing FY23E earnings. We maintain our FY22E core PATAMI of RM79.2m (+32% YoY) and introduce our FY23E core PATAMI of RM92.4m (+17% YoY), with continued growth across all three customer segments driven by the aforementioned enterprise digital adoption.

Dividends. We lower FY22E DPS from 2.0 sen to 1.9 sen, as we cut our payout assumption from 60% to 55% (FY21: 54%). We also assume a 55% dividend payout for FY23.

Maintain MP on TP of RM1.85 based on an unchanged 55x FY22E PER. While we believe CTOS continues to enjoy numerous long-term tailwinds, we believe that at its current price, near-term upside is limited as trading valuations (52x FY22E PER) may appear fair at the moment. Given the current climate where investors may shun or rotate out of high-PER stocks amidst current market conditions, we recommend accumulating at weakness at levels where capital upside is more favorable as the stock remains fundamentally intact.

Source: Kenanga Research - 24 Jan 2022