Despite sequential weakness in its associate profits in the first quarter ended March 31, 2023 (1Q23), CTOS Digital Bhd’s core businesses remain resilient, according to Maybank Investment Bank (Maybank IB) Research.
The research firm notes the credit rating agency’s continuous product improvement to maintain a dominant market share and upsell its products.
“The 74% quarter-on-quarter drop in associate profits in 1Q23 was largely seasonal, with its 57%-associate RAM Holdings likely loss-making during the quarter. “RAM exhibited similar trends in January through May of 2021 and 2022, where it generated losses of RM3mil and RM1.5mil respectively, before registering annual profits of RM12 to RM14mil,” said Maybank IB.
According to the research firm, credit rating activities tend to ramp up going into the second half of the year.
As such, the research firm said it maintains FY23 estimated associate profit targets of RM32mil (versus 1Q23’s RM2.2mil).
On the other hand, it added that the group’s 25%-owned associate in Thailand, Business Online Public Company Ltd had performed relatively well.
Going forward, Maybank IB said CTOS is seeing strong demand traction from digital moneylenders, as the group is currently engaging with two digital banks for the development of end-to-end credit on-boarding solutions.
“Coupled with the upcoming enactment of the new Consumer Credit Act, we believe this could anchor the growth of digital report transaction volumes as digital moneylenders are required to perform a more proper credit assessment process for the borrowers,” it added.
On concerns about its share price overhang, the research firm said the recent decision of private equity firm Creador to roll over its 14.7% stake in CTOS to a new fund should alleviate the issue following the moratorium lift.
This leaves one more key development to watch – namely the gazettement of the New Income Tax Order, which would officially enable the extension of the group’s pioneer tax status.
Maybank IB noted that CTOS has accumulated excess paid taxes of RM18mil as at 1Q23, which will be written back upon the final decision outcome, and enable it to recognise a much lower effective tax rate of 5% to 6% until FY26.
It maintains a “buy” call on the stock with an unchanged target price of RM1.97.
Source: thestar.com.my
