• Keep BUY and MYR2.22 TP, 70% upside with 2% FY22F yield. 1H22 core PATAMI of MYR38.1m (+100.3%) met expectations, buoyed by strong growth in the key accounts and direct-to-consumer segments, contributions from JurisTech, and lower interest costs. CTOS Digital declared a second interim dividend of 0.59 sen/share. We continue to like CTOS’ unique value proposition in the secular digitalisation trend, its exposure to the fintech space, and market-leading position.

• Strong showing. 1H22 results came in at 49.4% and 48.4% of our and Street’s full-year forecasts. Notably, we have added back the incremental tax expenses of MYR6.6m and removed the write-back of prior year tax of MYR4.2m to core PATAMI – pending the approval of the extension of CTOS’ tax incentive. Overall growth in revenue (+24% YoY) was mainly spurred by robust demand for CTOS Data Systems Reports, digital solutions, comprehensive portfolio reviews, and analytics services from all three main market segments. Bottomline, on the other hand, doubled YoY, boosted by full contributions from its acquisition in JurisTech, dividend income from RAM Holdings, and lower interest costs, which more than offset the hike in staff costs and IT support expenses.

• Sequentially stronger revenue (+9%) to MYR46.5m was driven by the key accounts and direct-to-consumer segments. Meanwhile, the growth in core profit of MYR21.8m (+34.3%) in larger magnitudes was helped by the increase in share of associates’ profits to MYR5.7m (1Q22: MYR2.4m) and higher dividend income. EBIT margin improved to 38.2% when compared to 37.9% and 34.9% in 2Q21 and 1Q22 – this is given the better operating leverage from higher revenues.

• On track for a superb year. CTOS’ FY22 growth target is on track, as we believe it will continue to leverage on the expansion of the digital economy, along with higher adoption and new solutions. The group will continue to develop its synergy opportunities in both Malaysia and Thailand via its various M&A plans as well as enhance its value proposition by bringing unique end-to-end digital lending solutions.

• ESG. Maintain BUY with an unchanged DCF-derived MYR2.22 TP and 2% ESG discount, as the ascribed ESG score of 2.90 is lower than the country median. We continue to like CTOS’ leading position and growth prospects, which track the expansion of the digital economy. This is given the higher demand for its various digital solutions, analytical insights, and exposure to fintech.

Source: RHB Research - 27 Jul 2022