CTOS to gain from economic pick-up

Stronger credit volume, trade transactions to increase

PETALING JAYA: The pick-up in economic activities is expected to bode well for CTOS Digital Bhd given the stronger volume of credit and trade transactions.

Hong Leong Investment Bank’s (HLIB) Research said this in a note to clients adding that cumulatively until the end of February, it had already noticed that loans application increased by 11% on a year-on-year basis.

“Also, the gradual expansion into new verticals and emergence of digital banks will help to boost revenue growth in the short and medium term,” HLIB Research said, as it maintained its “buy” call on CTOS, said.

CTOS’ subsidiaries are principally involved in, among others, the business of credit reporting, digital software-related services and software development.

Maybank Investment Bank’s (IB) research arm is similarly optimistic, saying that it expects better earnings ahead for CTOS on the back of steady growth in its core businesses, which could accelerate due to economic reopening, as well as higher associate profits from the recently-concluded acquisitions.

“We also expect a favourable outcome on its pioneer tax status application in the coming months, which could see tax write-backs and bring down overall tax expenses.

“Elsewhere, the proliferation of digital moneylenders could open up a new growth avenue for the group,” said Maybank IB, which also retained its “buy” call on CTOS said.CTOS saw its net profit increase by 62.3% year-on-year to RM12.5mil for the three months ended March 31, 2022.

This was on the back of revenue amounting to RM42.7mil, 12.4% higher compared with RM38mil in the same corresponding quarter.

The increase in profit was bolstered by improved performance from all of its three customer segments, namely key accounts, commercial and direct-to-consumer.

“Overall, results were within estimates and hence, our forecasts are unchanged.

“We continue to like the company for its market leadership, strong economic moat, and highly scalable business model,” HLIB Research said.

It also said the company was well positioned to capture future opportunities with significant balance sheet headroom and liquidity.

“Thus, we view the recent share price pullback as a good opportunity to accumulate the stock.”

Maybank IB noted that despite first quarter of the year’s results making up just 15% of its full-year estimates, it maintained its forecasts as it still expects a tax write-back upon the pioneer tax status extension, while the coming quarters could see higher associate contributions.