CTOS Digital Bhd’s faster-than-expected acquisition pace, coupled with plans to tap into new sectors with tremendous growth potential such as automotive, insurance and real estate (combined 2021-2025 compound annual growth rate [CAGR] of 50.6%), have boosted confidence of stock analysts in the company’s earnings growth potential.
On Friday (Aug 6), CTOS announced that it has acquired an additional 2.65% (or 21.74 mil shares) in Business Online PCL (BOL) for RM26.8 mil, raising its total stake to 22.65% (or 185.84 mil shares).
BOL is the dominant credit bureau (59% market share) in Thailand. The acquisition came as a positive surprise (timing-wise) as CTOS had just completed its 4.63% acquisition in RAM Holdings Bhd on July 29.
“From IPO (initial public offering) proceeds earmarked for acquisitions, (RM58.7 mil), the group has utilised circa 63% (or RM36.9 mil) for earnings accretive acquisitions (RAM & BOL) within one month of listing,” justified Kenanga Research analyst Adrian Kok Xi Feng in a company update.
“Post-BOL acquisition, we estimate CTOS’ cash balances at circa RM35 mil with RM21.8 mil IPO proceeds earmarked for strategic investments. Thereafter, CTOS should be able to fund investments (circa 10% of net assets) without the need to raise additional capital.”
The research house expects BOL to contribute RM6.5-RM7.8 mil towards CTOS’ FY2021-2022E bottom-line.
“The increased stake in the Thai leading credit bureau BOL (circa 59% market share) allows CTOS to further tap into an under-penetrated Thailand. Note that BOL’s 1H FY2021 earnings are circa 30% higher year-on-year,” opined Kenanga Research.
All-in-all, the research house maintained its “outperform” rating on CTOS with a higher target price of RM1.75 (from RM1.40 previously) based on higher FY2022E price-to-earnings ratio (PER) of 55 times (from 45 times previously).
This is at a 57% premium to peers justified by the company’s:
- Market leader status with 71.2% share in an under-penetrated market;
- More robust industry growth (2021-2025E CAGR of 13.2%) vs peers concentrated in developed nations such as US (7.5%), and UK (5.3%);
- Superior earnings growth of 20-50% (vs peers’ 12-14%); and
- Scarcity premium for an ASEAN-listed credit rating agency (where the growth potential is high).
At 10.26am, CTOS was down 1 sen or 0.64% with 382,700 shares traded, thus valuing the company at RM3.1 bil. – Aug 9, 2021
