KUALA LUMPUR: Kenanga Research is overall positive on CTOS Digital Bhd
's plan to increase its stake in RAM Holdings Bhd as it is expected to improve the group's long-term propositions.
CTOS's intention to increase its stake in RAM to 55-60% from the current 19.2% could create new opportunities for the group in the bond rating space and enhance its client offerings, it said.
Reporting on details from CTOS's recent briefing, Kenanga said the cost of the proposed acquisition would be in the range of RM100mil to RM122mil.
RAM's current implied blended valuation standing at RM280mil to RM300mil, which translates to about 18 times price-earnings ratio.
Kenanga added that 19.9% RAM shareholder Creador via Oscar Matrix is interested in disposing of its entire stake and would agree to transact at a discounted price of up to 10%.
Should CTOS, which is in a net cash position, follow through with its intention to fund the entire exercise via internally generated funds and borrowings, a full undertaking via debt will place the group at a net gearing level of 0.3x in FY21, said the research firm.
CTOS projects RAM to be able to at least sustain an earnings performance of RM13mil to RM15mil, which calls for the group to increase its FY23 earnings guidance to RM95mil-RM100mil from RM90mil-RM94mil before incorporating any synergies from the acquisition.
"We reckon that any new offerings would take time to hit the market given the need to integrate and align new propositions as bond ratings and credit scoring products are starkly different.
"Key targets to the group would still be SMEs," Kenanga added.
Kenanga, which has an "outperform" recommendation on CTOS, lowered its target price to RM1.65 after recalibrating the rising risk-free rate and fluctuations in beta, which has been mostly unfavourable for the stock in lieu of the recent sell-down.
"That said, although the stock is not a prominent dividend yielder, we do not discount more vibrant prospects as the group moves away from acquisitions and might seek to reward shareholders," it said.
