• Keep BUY, higher MYR1.93 TP from MYR1.89, 37% upside, 2.4% FY24F yield. CTOS Digital’s FY23 record-high core PATAMI of MYR104m (+21.8% YoY) met expectations – supported by remarkable growth from all its business segments. We continue to like CTOS for its sustainable growth prospect from its various digital solutions and analytical insights, supported by secular trend of digitalisation, recession-proof business model, solid earnings delivery, cash flow generation, and strong ROE. It declared a fourth interim DPS of 1.706 sen (4Q23: 0.36 sen).

• Strong growth momentum. FY23 revenue of MYR261.4m (+34.2%) and core PATAMI of MYR104m met ours and Street’s estimates at 100.3% and 99.4% full-year forecasts. Strong double-digit growth were seen in all segments – key accounts (+51%), commercial (+15%), and direct-to-consumer (+46%), boosted by new account activation, product penetration, higher demand for digital solutions, analytical insight, digital reports, and resumption of Central Credit Reference Information System (CCRIS) revenue (a cost pass-through) following the expiry of fee waiver in Dec 2022. International operation (newly-acquired subsidiaries) booked MYR5.9m revenue and MYR1.1m profit while share of profits from associates grew 11.6% YoY to MYR26m.

• 4Q23 boosted by newly-acquired subsidiaries and tax credit. 4Q23 revenue grew 38.7% YoY and 10.1% QoQ to MYR73.2m – buoyed by growth from all business segments and contribution from Prime Analytics and Finscore. Consequently, core PATAMI was higher 36.7% YoY to MYR28.8m. However, sequential weakness (-1.1% QoQ) in core PATAMI can be attributed to higher staff and IT-related costs (+39.3% QoQ). Note that we excluded the reversal of c.MYR27.8m in tax credit when arriving at our core PATAMI, on the extension of a second 5-year tax exemption ending Nov 2026 as we have been factoring-in this tax incentive into our earnings forecasts.

• FY24 outlook. Management remains optimistic on CTOS’ growth trajectory for its core business, driven by higher ARPU from the rising adoption of digital solutions and in-depth analytical insights, plus on-boarding of new customers. Continued innovation on advanced analytics and digital & fraud ID are set to drive growth. A new digital lending platform, loan origination systems, a digital issuer platform with Bursa Malaysia, ESG ratings, SME credit ratings, and product expansion for corporates and SMEs are among the initiatives to drive growth at associate company level. International operation expansion via new subsidiaries offers long-term growth potential for alternate data creditcentric solutions.

• Reiterate BUY. Our FY24-25 earnings forecasts are raised 2.8% and 6.9% as we factor-in the latest guidance and model upkeep exercises. Our DCFderived TP is revised to MY1.93, with a 4% ESG discount baked in, as we rolled forward our valuation base year. Downside risks: Regulatory environment changes, slower-than-expected topline growth, and data security breaches.

Source: RHB Securities Research - 2 Feb 2024