CTOS has shown stellar turnnover growrh across all key segment notes Maybank IB, especially on the tailwinds of resilient demand for credit assessment, analytics and digital security solutions, earnings marginally dragged YoY in the absence of tax writebacks.
The house maintains a Buy call on the stock premised on its role as a niche service provider with dominant market share in a rapidly growing industry and its solid underlying business model with the potential to scale new verticals.
Excluding EIs, CTOS registered a core net profit of MYR21.4m (+29% QoQ, -5% YoY) in 1Q23 on the back of strong double-digit annual and single-digit sequential growth across all key segments. On a cumulative basis, this took 1H23 core earnings to MYR38m (+9% YoY) and despite it only accounting for 32%/37% of our/the street’s FY23 forecasts, we deem the results to be in-line as it tracked expectations at a pre-tax level. An interim DPS of 0.55 sen (2Q22: 0.59 sen) was also declared, in-line with its 60% DPR policy.
CTOS’ Key Accounts segment grew 55% YoY as transaction volumes surged 28%, underpinned by strong demand for its analytics & digital reporting/ security solutions. It onboarded 12 new customers (40% of FY22 total) and also secured its third digital bank licensee in the quarter. The Commercial segment (47% of group turnover) grew 17% YoY, primarily supported by +6% ARPU growth from upselling activities of value-added services & analytics solutions as well as higher bulk credit report sales (+38% YoY) in the Int’l sub-segment. Share of associate profits also saw a three-fold increase YoY
due to positive contributions from all associate companies.
Despite pronounced growth across the board, core earnings weighed YoY in the absence of a MYR4.2m tax writeback in 2Q22. CTOS’ STR for 1H23 was 21.5% (vs. 1H22’s 11.2%) and it has thus far accumulated c.MYR20m in excess paid taxes – this quantum is likely be written back upon the pending gazettement of the New Income Tax Order which will officially enable the extension of the group’s Pioneer Status through to 2026. Upon finalisation, Maybank IB forecast CTOS could benefit from a tax writeback of c.MYR8m in FY23E whilst also enjoying a significantly lower STR of 6% in FY24-26E
