Solid Growth Moment For CTOS Digital With Contributions Across All Business Sector

CTOS Digital’s quarter one 2023 core profit after tax and minority interest of RM20.8 million met expectations, and is on track for another record year, buoyed by better performance across all its business segments. It declared a first interim dividend per share of
0.433 sen.

RHB Research (RHB) in the recent Malaysia Results Review Report stated that they continue to favour the stock for its solid earnings delivery and management’s strong track record with the growing adoption of its digital solutions, especially in the current uncertain operating environment.

Quarter one 2023 reported revenue and core profit after tax and minority interest stood at RM59.6 million.

“The results met expectations, at 20% of our and consensus’ full year forecasts, as its quarter one usually makes up 19 to 22% of full-year earnings,” said RHB.

The key accounts and direct-to-consumer segments recorded superb growth of 66.5% and 63.9%, driven by strong demand for CTOS Data Systems Reports, digital solutions, and comprehensive portfolio review and analytics services.

The strong profitability more than offset the higher operating expenses and interest costs, coupled with lower associates’ profit. Its international operations continued its strong trajectory with 41.8% and 51.1% growth in revenue and profit, thanks to higher bulk data sales.

While revenue showed a sequential growth of 13%, core profit after tax and minority interest was flattish due to the significantly lower share of associates’ profit at RM2.2 million from RM8.5million in quarter four 2022.

The drop in gross profit margins was due to the resumption of CCRIS revenue, a cost pass-through, following the expiry of its fee waiver in Dec 2022.

Management is optimistic of maintaining the growth momentum into 2023, on the continued recovery of the Malaysian and regional economies.

On top of the growth trajectory of its business-as-usual operations from the leading digital solutions and analytical insights, more synergistic and cross-selling opportunities are seen from various product expansions such as its digital lending solutions platform, and environmental, social and governance ratings and SME Credit Ratings, with its respective associate companies in Juris Technologies and RAM Holdings.

RHB believes the stability of demand for CTOS’s various solutions will continue to bode well in the current uncertain environment, especially in the technology sector, where most semiconductor-related names are in a down-cycle. Its high margins, solid cash flow generation, and strong ROE are among its strengths.

Downside risks identified by RHB are the changes in the regulatory environment, slower-than expected topline growth, and data security breaches.

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