CTOS Digital Bhd’s maiden post-listing acquisition by acquiring a strategic minority stake in credit rating agency RAM Holdings Bhd has received thumbs-up from UOB Kay Hian Research.
With the acquisition, CTOS is paving its way to become an established multinational platform with comprehensive data analytics and performance insights, said the research house.
“The management believes that there are strong synergies in both product offerings and customer base between CTOS and RAM which they will look to realise on moving forward,” analyst Jack Goh pointed out in a company update.
Yesterday (July 29), CTOS entered into a share purchase agreement with CIMB Bank Bhd to acquire 462,500 ordinary shares in RAM which represent 4.625% of RAM’s total paid-up share capital for RM10.05 mil cash.
UOB Kay Hian Research described the price tag as ‘fair’.
“RAM generated revenue of RM40 mil and net profit of RM8.4 mil in 2020. RAM also has a total assets of RM188 mil and net assets of RM167.2 mil,” noted the research house.
“The acquisition price of RM10.1 mil is about RAM’s 25.9 times FY2020 PE (price-to-earnings ratio) which is at a discount to the mean PE of 34.3 times of other credit rating agencies globally.”
Moving forward, UOB Kay Hian Research revised CTOS’ FY2021-22 net profit forecasts by 2% to reflect the accretion from RAM’s stake acquisition.
However, the research house downgraded CTOS to “hold” (from “buy” previously) after the company’s impressive share price performance. Nevertheless, UOB Kay Hian revised upwards CTOS’ target price to RM1.34 (from RM1.32 previously) which implies 40 times FY2022F PE.
“This is largely in line with the industry’s three-year PE means of 37 times, which we reckon is justifiable given its multi-year robust growth story and it being the direct proxy to growing demand for credit reporting in Malaysia,” the research house pointed out.
“In a hypothetical blue-sky scenario, CTOS’ target price can be as high as RM1.71 which implies 51 times FY2022F PE (industry’s three-year +1SD [standard deviation] above mean PE).
For now, UOB Kay Hian expects the stock to continue delivering resilient earnings growth in 2021-22 with more value-accretive expansion.
At the close of today’s mid-day trading, CTOS was unchanged at RM1.54 with 9.23 million shares traded, thus valuing the company at RM3.08 bil. – July 30, 2021
