1QFY22 normalised PATAMI of RM16.9m (+3% YoY) and interim dividend of 0.32 sen are both deemed to be within expectations. We anticipate progressively healthier earnings in the coming quarters fuelled by both organic and inorganic growth in its credit information and analytics solutions divisions. Following the recent share price weakness, we believe current levels present a buying opportunity. Upgrade to OP (from MP) with a higher TP of RM2.00 (from RM1.85).

1QFY22 within expectations. 1QFY22 normalised PATAMI of RM16.9m is deemed broadly within expectations, making up 21% of both our and consensus full-year estimates. We reckon the group will continue to report sequential earnings growth which should translate to a lumpier 2HFY22. An interim dividend of 0.32 sen (44% payout) was declared which we deem to be also within expectation for now. Our full-year target of 1.86 sen spells an anticipated 55% payout ratio.

YoY, 1QFY22 revenue rose 12% to RM42.7m thanks to growth across all segments, though mainly contributed by better Key Accounts (+23%) performance. Operating profit (+19%) also benefited from the higher sales volumes which lifted operating margin (34.7%, +1.9ppt). Ultimately, this translated to a net earnings improvement at RM12.5m (+54%). However, stripping out exceptional items in current and subsequent periods (mainly forex losses and expenses on borrowings), normalised 1QFY22 earnings came in at RM16.9m (+3%).

QoQ, 1QFY22 top-line gained 10% with revenue being led by Direct-to- Consumer and Key Accounts contribution. Similarly, margins expanded from the larger-scaled operations. All in, normalised 1QFY22 PATAMI translated to a 25% earnings growth.

Outlook. CTOS is likely to continue benefiting from the increasing demand for credit information checks and analytics capabilities. We believe demand for such services will only increase as a consequence of economic recovery and lending needs. The recent acquisition of stake in RAM Holdings, BOL and JurisTech is poised to deliver inorganic growth while still staying true to its core business line. The ongoing integration of JurisTech into the group could materialise into scalable end-to-end digital lending solutions.

Post results, we leave our FY22E/FY23E earnings unchanged.

Upgrade to OUTPERFORM (from MARKET PERFORM) with a higher TP of RM2.00 (from RM1.85, previously). We roll over our valuation base year to FY23E EPS of 4.0 sen. However, we tone down our applied PER of 55x to 50x given the softer trading sentiment for the stock. That said, we find the valuation as non-excessive backed by the stock’s presence in a highly unsaturated market which warrants a scarcity premium, and its positioning for solid double-digit earnings growth in the near term. All that said, we believe the recent sell-down presents a buying opportunity for investors looking for high-growth potential picks.

Source: Kenanga Research - 25 Apr 2022