THERE are catalysts for continued growth within CTOS Digital Bhd with buying opportunities abound following the company’s recent share price weakness.
Kenanga Research attributed the retreat to (i) concerns on CCRIS access (restored in November); (ii) softened market sentiment; and (iii) concerns of share overhang pending moratorium expiry in January 2022.
“These short-term pressures present a good opportunity to accumulate CTOS which has numerous long-term catalysts,” contended analyst Lim Khai Xhiang in a company update.
Kenanga Research listed the catalysts as follows:
- Greater demand for reports fuelled by a boom in eKYC (know your customer) across industries as customers from financial institutions to e-payment providers look to fully onboard clients virtually;
- Healthy appetite for merger & acquisitions (M&As) (including regional) to fuel earnings growth; and
- Continued growth from new products in new sectors (auto, insurance and real estate).
Yesterday (Dec 8), CTOS acquired an additional 3.5% stake in RAM Holdings Bhd (lifting total stake to 8.1%) from Standard Chartered Bank Malaysia Bhd for a total consideration of RM7.61 mil.
“Based on RAM’s FY2020A profit after tax of RM8.4 mil which implies a TTM-PER (trailing 12 months price-to-earnings ratio) of 26 times, we think is fair and in line with other listed credit rating agencies globally,” opined Kenanga Research.
“The RM7.61 mil will be fully funded by CTOS’ remaining RM21.8 mil IPO (initial public offering) proceeds earmarked for acquisitions.”
With its share price correction “presenting an attractive opportunity to own a scarce ASEAN-listed credit rating agency”, Kenanga Research has upgraded CTOS to “outperform” (from “market perform previously) with an unchanged target price of RM2.
“The current price of RM1.77 implies a FY2022E PER of 49.3 times compared to our ascribed 55 times,” noted the research house.
“CTOS continues to deserve a 55x PER for its (i) market leader status with 71.2% share in an underpenetrated market; (ii) more robust industry growth (2021-2025E compound annual growth rate (CAGR) of 13.2%) vs developed nation peers (US: 7.5%; UK: 5.3%; and (iii) superior earnings growth of ~20% (vs peers’ 12-14%).”
At 10.42am, CTOS was up 4 sen or 2.26% at RM1.81 with 3.88 million shares traded, thus valuing the company at RM3.98 bil. – Dec 9, 2021
