Hong Leong Investment Bank Bhd (HLIB) upgraded CTOS Digital Bhd to BUY from Hold with a revised target price of RM0.89, previously RM0.91, implying a capital upside of 33.8% and expected total return of 37.8%, as the analyst highlighted a transition phase that supports longer-term re-rating despite near-term earnings softness.
The research house said CTOS Digital is moving from a traditional credit bureau model into a platform-centric intelligence provider, supported by deeper system integration within client lending workflows and stronger demand for fraud related solutions.
It added that while FY25 margins were diluted by front loaded IT investments, including cloud migration and AI enablement, the group is targeting a cost-to-income ratio of 40% to 43% by 2028 alongside a 10% to 12% revenue compound annual growth rate over the next three years.
Earnings visibility in the near term remains affected by rising operating costs and the expiry of pioneer tax incentives in November 2026, prompting HLIB to cut FY26 and FY27 earnings forecasts by 10.4% and 3.4% respectively while introducing FY28 projections with expected growth of 10.2%.
HLIB noted that structural demand from fraud detection and the upcoming Consumer Credit Act 2025 could expand CTOS Digital’s addressable market by requiring broader credit data formalisation among non-bank lenders.
The analyst also highlighted product expansion through its fraud ID platform and alternative data analytics as key drivers of higher quality recurring income and sustained double digit revenue growth in FY26.
Despite near term margin pressure and elevated administrative costs of about RM25 million per quarter, automation and productivity gains are expected to gradually support margin recovery over the medium term.
HLIB said execution remains key, particularly in scaling new digital offerings and navigating regional volatility, but maintained that CTOS Digital’s entrenched data position and improving associate contributions should provide earnings resilience during its transformation phase.
As of 11.29 am, the stock price increased by 2.26% to RM0.68.
