KENANGA Research has lowered CTOS Digital Bhd’s rating by a rung to “market perform” (from “outperform previously) following its recent share price rally and prospect of a reduced FY2022E earnings per share (EPS).
At the same time, the research house has also slashed the company’s target price to RM1.85 (from RM2 previously) to align with its view that the current implied 55 times FY 2022E price-to-earnings ratio (PER) has priced in its near-term prospects and that higher multiples may be unpalatable to some investors.
“As the current share price has priced in CTOS’ near-term prospects, there is limited room for valuation upgrades,” projected analyst Lim Khai Xhiang in a company update following a conference call on CTOS’ acquisition of Juris Technologies Sdn Bhd (JurisTech).
Kenanga Research said it is positive on synergies derived from CTOS’ acquisition of JurisTech where both parties can “instantly cross-sell to each other’s clients”.
However, the research house is wary about the management’s PATAMI (profit after tax and minority interest) targets of RM55-RM60 mil in FY2021, RM75-RM80 mil (FY2022) and RM90-RM94 mil (FY2023) which is slightly lower than its estimated RM64 mil/RM84.7 mil for FY2021/FY2022.
“Thus, we lowered our FY2021/FY2022 estimates by 7% each by tweaking our margin assumptions to bring our estimates closer to management’s targets,” noted Kenanga Research.
Besides creating unique end-to-end solutions from the JurisTech synergies, CTOS also looks to fuel its growth by increasing its stake in:
- RAM Holdings Bhd, mainly for its ESG (environmental, social and governance) products; and
- Thailand’s Business Online Public Company Ltd (BOL) which provides the avenue to tap into the direct-to-consumer space in Thailand.
Elsewhere, the management has also reiterated its plans to expand into other sectors such as automotive and real estate. “Given CTOS’ net cash position, the possibility of more M&As (mergerS and acquisitions) to fuel inorganic growth cannot be discounted,” opined Kenanga Research.
At 10.30am, CTOS was up 1 sen or 0.54% to RM1.87 with 2.92 million shares traded, thus valuing the company at RM4.11 bil. – Jan 11, 2022.
