Research houses are optimistic of CTOS Digital Bhd’s outlook as it ended the year in good strides.
The group’s full year financial results ended Dec 31, 2023 (FY23), met their expectations, supported by remarkable growth from all its business segments.
RHB Investment Bank (RHB IB) raised its discounted cash flow (DCF)-target price (TP) for the group to RM1.93 from RM1.89, 37% upside, 2.4% FY24F yield and a 4% ESG discount baked in, as it rolled forward its valuation base year.
“We also raised its FY24 and FY25 earnings forecasts are raised 2.8% and 6.9% as it factor-in the latest guidance and model upkeep exercises.
The credit reporting agency saw a record-high core profit after tax, amortisation and minority interest (Patami) of RM104 million, which is an increase of 21.8% year-on-year (YoY) met expectations.
“We continue to like CTOS for its sustainable growth prospect from its various digital solutions and analytical insights.
“It is supported by secular trend of digitalisation, recession-proof business model, solid earnings delivery, cash flow generation, and strong return on equity (ROE)” the research house said in its Malaysia Results Review today (Feb 2).
RHB IB said in FY23 CTOS Digital saw a strong growth momentum, with FY23 revenue of RM261.4 million, an increase of 34.2%, and core Patami of RM104 million.
“The core Patami met ours and the Street’s estimates at 100.3% and 99.4% full-year forecasts. Strong double-digit growth were seen in all segments.
Key accounts saw 51% growth, while commercial and direct-to-consumer saw 15% and 46% growth respectively/
This, it said was 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.
“Meanwhile, international operation (newly-acquired subsidiaries) booked RM5.9 million revenue and RM1.1 million profit while share of profits from associates grew 11.6% YoY to RM26 million.”
It added for the quarter under review (4Q23), earnings are boosted newly-acquired subsidiaries, Prime Analytics LLC and Finscore Inc and tax credit.
As for FY24 outlook, the research house said CTOS Digital management remains optimistic on its growth trajectory for its core business.
“This will be driven by higher average revenue per user (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 and fraud ID are set to drive growth. Anew digital lending platform, loan origination systems, a digital issuer platform with Bursa Malaysia 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 credit centric solutions,” it added.
Similarly, CTOS Digital’s net profit met Kenanga Research’s expectation but surprised with its 70% dividend payout.
“The group’s FY23 normalised profit of RM104 million accounted for 104% of our full-year forecast and 99% of consensus full-year estimate, adjusting for tax provision writebacks.
“Post-results, we raise our FY24F earnings by 6% as we become more convinced of the group’s trajectory following its strong foothold in domestic and foreign credit assessment products. Meanwhile, we introduce our FY25F numbers,” it said in its Results Note today (Feb 2).
The research house maintained its OUTPERFORM call with a higher discounted cash flow (DCF)-driven TP of RM2 from RM1.85.
“Our revised TP came from us incorporating a higher earnings base in FY25F into our DCF on the back of a WACC of 6% and TG of 3.5%. We
ascribe a 5% premium to our fair value in line with our 4-star ESG rating for the stock.
Kenanga said meeting its FY23 normalised earnings target of RM100 to RM105 million, CTOS stayed emboldened with its FY24 and FY25 guidance of RM125 to RM130 million and and RM150 to RM160 million, respectively.
Like RHB IB, the research house also believed that the group will continue to reap its strong position in the credit scoring space with the adoption of more digital centric financial products.
“Its regional associate footprint also appears to be gaining prominence, making good on past growth aspirations. With regards to dividends, the group surprised with a better payout of 70% as opposed to its 60% policy rate.
A final dividend of 1.7 sen was declared, amounting to a full-year payment of 3.32 sen, which was above the research house’s 2.61 sen expectation.
“This could translate to even better payout in the coming periods as the group may likely be willing to slow down on further expansion in favour of rewarding shareholders,” it added.
