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UOB Kay Hian upgrades CTOS to 'buy' as recent steep share price retracement creates investment opportunity

KUALA LUMPUR (April 11): UOB Kay Hian said on Monday (April 11) that it had upgraded CTOS Digital Bhd to "buy" from "hold" as the group’s recent steep share price retracement had created a more favourable investment opportunity from a risk-reward perspective.

“We deem that the company’s 35% share price correction from its peak has fairly priced in the current pressure on growth stocks in the context of funds’ rotation to value stocks.

“As such, we opine that CTOS’ valuations are now more appealing and provide a better investment opportunity from risk-reward perspectives, anchored on the group’s robust long-term growth trajectory and defensive business nature (more than 60% of group revenue is recurring),” said the research house analyst Jack Goh.

His target price for CTOS stood at RM1.80, implying 45 times 2023 price-earnings (P/E).

“We reckon that CTOS is trading at a premium to the industry’s three-year P/E mean of 37 times, which is justifiable given its multi-year robust growth story and it being the direct proxy for growing demand for credit reporting in Malaysia,” he said.

At the time of writing on Monday, CTOS was unchanged at RM1.57. The counter tumbled to a recent low of RM1.35 on March 8 from a peak of RM2.06 on Oct 15, 2021.

Goh also opined that CTOS is well positioned to prosper from Malaysia’s transition towards the new digital economy, leveraging its deep-rooted database (more than 30 years) of local businesses, fully fledged ecosystem of credit solutions and synergies from recent strategic acquisitions.

“We also expect the post-lockdown full economic reopening to result in credit demand recovery and pent-up activations for CTOS’ digital solutions,” he added.

Due to the Malaysian government’s push towards a digital economy, Goh said several digital initiatives such as the National Digital Network (JENDELA), 5G roll-out, Malaysia Digital Nomad programme and approval for digital moneylending licences had been set in motion.

As CTOS is Malaysia's market leader in the credit reporting segment with more than 70% of total market share and a deep range of advanced analytic services on its platform, he deemed that CTOS will largely benefit from the digitalisation and process automation of financial services and other verticals.

According to him, CTOS is poised to record a stellar three-year net profit compound annual growth rate of 22% in 2022 to 2024, mainly driven by: broadening of data assets, which will move up its value chain and deepen its share of wallets in the credit bureau industry; further vertical expansion, deployment of new solutions and penetration into other economy sectors; synergies and incremental revenue from newly-acquired associates — BOL, JurisTech and Basis; meaningful credit growth, which would spur demand for credit and risk information solutions; and CTOS’ distinctive advantages when combining traditional data sets with advanced analytics.


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