CTOS Digital Bhd is expected to see healthy growth prospects on the back of strong demand for its products and services.
Meanwhile, other products such as eKYC (electronic know your customer), fraud detection application IDGuard Fraud Bureau, and digital solution CAD are also churning in higher income for the group’s key accounts segment. Its commercial segment is expected to rebound once the lockdown ends.
CTOS serves three distinct types of customers – key accounts, commercial and direct-to-consumer.
Its key accounts segment comprises the group’s highest revenue-generating customers as well as other selected customers, such as those with complex requirements or well-recognised brands. Its commercial segment, on the other hand, comprises the group’s Malaysian segment commercial customers other than key-accounts customers and all commercial customers included within the international segment, while its direct-to-consumer segment comprises the group’s retail consumers.
According to Nomura Securities Research, there is now more visibility on the segmental performance of CTOS following an investor group meeting it hosted with the company’s management. The brokerage reiterated a “buy” call on CTOS, with a higher target price of RM1.80, compared with RM1.45 previously. “We are more confident of CTOS’ segmental growth outlook following its recently reported results for the second quarter ended June 30, 2021,” Nomura said.
Nomura adjusted its revenue estimates for CTOS for the financial years (FY) ending Dec 31, 2022 and 2023 up by 4% each, mainly coming from positive revisions in the key accounts segment and normalisation of the CCRIS (central credit reference information) fee waiver. The brokerage’s earnings estimates for the group, on the other hand, were revised up marginally by 2% each for FY22 and FY23, as it conservatively built in some cost increases from headcount and new products development.
The new target price for CTOS is based a target price-earnings multiple to 55 times (from 45 times), and revised earnings per share of 3.28 sen for FY22.
On the group’s recent acquisition of a minority stake in RAM Holdings, Nomura said CTOS’ management believes there is room to realise incremental revenue/customer synergies from the rating agency, especially for its key accounts segment, which are looking for additional data and products (such as ESG ratings).
“RAM’s scoring and reports can augment CTOS’ data and can be offered to key accounts as a value-added solution. CTOS will be collaborating with RAM to explore these avenues. “At the moment, given that CTOS’ stake in RAM is around 4.6%, it will not be equity-accounting RAM earnings in our view, but this might change in the future should CTOS increase its shareholding,” Nomura said. According to Nomura, CTOS expected the results of the tax incentive review sometime in September-November 2021. “On new products such as tenants screening and used vehicle reports, management mentioned that new products typically take one to two years for reaching mainstream usage,” it added.
For the first half of 2021, CTOS’ key accounts segment posted a growth run-rate of 24% year-on-year (y-o-y), and its comprehensive portfolio review product demand is seeing good take-up, and growth in revenue is contributed by other products such as eKYC, IDGuard Fraud Bureau, and CAD. For the commercial segment, revenue for the first half of 2021 was up 10% y-o-y, and CTOS expected the slowdown in activations to reverse once the lockdowns end and activations/ transactions pick up.
For the direct-to-consumer segment, revenue for the first half of 2021 was up 104% y-o-y, as downloads of myCTOS score reports increased sharply from a very low base.