KUALA LUMPUR (March 12): Shares in CTOS Digital Bhd fell as much as 16% on Tuesday to their lowest in 20 months, after a High Court decision ruled that credit reporting agencies are not legally empowered to formulate credit scores.

The counter declined to RM1.22, its lowest since July 2022, in relatively high trading volume on Bursa Malaysia. At 10.10am, the stock was trading at RM1.27, down 12% and set for its steepest decline in a single day on record since its listing in July 2021, after 28.9 million shares changed hands. At least one analyst downgraded the stock.

“Business risks appear to deepen with likely immediate repercussions being a challenge to its business model, and with similar legal suits arising in the near term,” Kenanga Investment Bank said. The research house cut its rating to 'underperform', equivalent to a 'sell' call, and lowered its target price to RM1.15.

CTOS’s legal troubles escalated after High Court judge Datuk Akhtar Tahir ordered CTOS Data Systems Sdn Bhd (CDS), a wholly owned unit of CTOS, to pay businesswoman Suriati Mohd Yusuf RM200,000, together with RM50,000 in costs, for an inaccurate negative credit rating.

Akhtar found that CDS had overstepped its statutory functions under the Credit Reporting Agencies Act 2010 in formulating a credit score for Suriati, when it was merely to be a database of credit information for its subscribers. CTOS said it would appeal against the decision.

In the meantime, CTOS is expected to operate as usual, Kenanga said. CTOS doesn’t disclose the proportion of its revenue from its credit scoring products or credit information services, though non-credit-related streams likely make up only about 10% of total revenue, the research house added.

On its part, CTOS acknowledged the High Court judge’s decision in favour of Suriati, but noted that its unit had lodged a notice of appeal to the Court of Appeal.

There were "no material losses anticipated as a result of this matter and no provisions shall be required”, CTOS said in a terse exchange filing on Monday.  

https://www.theedgemarkets.com/node/704262