CTOS Digital’s nine-month 2022 earnings jumped 74% year-on-year tracking expectations on the pre-tax level, although the higher 3Q22 tax expense put its core net profit of 56% YoY to just 66/73% of Maybank IB in its full-year estimates.
The underlying business remains strong, with all its segments growing due to higher demand for credit scoring and other digital solutions. Management also suggested that CTOS is slowing down on its acquisition spree, shifting its focus to garner more synergies from its associate companies.
The investment bank has a buy call on the stock with a target price of MYR1.94, CTOS has a strong showing in third-quarter net profit rising 72% to MYR22.8m on the back of 37% growth in revenue, higher margins due to better product mix, and higher associate profits, but was partially negated by higher interest expense due to higher borrowings which was undertaken to fund the recent stake acquisitions of BOL and RAM. The group declared an interim DPS of 0.6 sen during the quarter, bringing it to 1.515 sen.
Strong underlying business performance Key Account segment saw higher transactional volumes of its digital reports especially among digital moneylenders, signalling active credit lending activities. Its value-added digital services (eKYC, CAD, IDGuard) also saw a strong take-up rate across Key Account and Commercial clients.
Traction on its international Commercial segment was decent as CTOS has begun offering more in-depth financial/credit analysis on local and regional companies to a large client base. The D2C segment also saw growth in registered users to 2.4mil in 3Q22 (from 2.2mil in 2Q22).
Maybank IB makes no changes to its forecast, as it expects CTOS to receive the official pioneer tax status and tax writebacks in 4Q22. Business-wise, CTOS is expected to continue benefiting from the proliferation of BNPL activities and digital banks, whilst also garnering more business synergies through its associates JurisTech and RAM Holdings by offering a more
holistic one-stop credit lending solutions to the market.
