ALTHOUGH investors have generally been sceptical of CTOS Digital Bhd’s prospects post its recent private placement exercise, Maybank IB Research has begged to differ, believing that the market should look past this noise as the company is well-positioned to benefit from on-going demand for credit assessment solutions from both commercial and retail segments.
Given the current circumstances, nevertheless, the research house has lowered its target price to RM2.17 (from RM2.30 previously) but reiterated its “buy” call.
“We trim our FY2022-2024E earnings by circa 2% to factor in recent developments on its share placement and acquisition exercises,” projected analyst Shafiq Kadir in a company update.
“The share price has fallen by 13% YTD (year-to-date) due to the broader market weakness.”
For the record, CTOS has issued 110 million new shares (5% of share base) from its recent private placement exercise, raising RM173.8 mil at RM1.58/share. The amount raised was lower than originally planned as the group plans to also tap borrowings to cover the shortfall.
“With the acquisition of a 49% stake in Juris Technology Sdn Bhd (JurisTech) at RM205.8 mil and the additional 2.17% stake in Thailand’s Business Online Public Company Ltd (BOL) at RM26.2 mil (11.50 baht/share), the shortfall of RM58.2 mil per our estimate is to be funded through bank borrowings,” opined Maybank IB Research.
“We, however, are slightly positive on the acquisition price of BOL which is 23% below its targeted ceiling acquisition price, reflecting a valuation of 33 times FY2022E PE (price-to-earnings ratio).”
Looking into the future, the research house foresees that on a good case scenario, the revenue upside from digital banks may match the total revenue of CTOS Digital’s five largest customers of circa RM20 mil per annum, or 10-12% FY2022-2024E revenue.
“This is based on all five digital banks utilising CTOS’ comprehensive credit solutions, similar to its existing financial institutions clients” noted Maybank IB Research.
“That said, the downside risk lies in the digital banks leveraging on their proprietary data analytics to create their own credit assessment for their portfolio of customers, in order to minimise the cost of customer acquisition.”
At the close of today’s mid-day trading, CTOS Digital was up 1 sen or 0.64% to RM1.58 with 7.5 million shares traded, thus valuing the company at RM3.65 bil. – March 22, 2022
