CTOS has indicated its intention to commence a general offer (GO) to increase its stake in RAM from 19.2% to 55% to 60%.
PETALING JAYA: After establishing how RAM Holdings Bhd might fit into CTOS Digital Bhd
’s overall business plan, the latter is now convinced about a strategic acquisition and wants to buy more into the former.
CTOS has indicated its intention to commence a general offer (GO) to increase its stake in RAM from 19.2% to 55% to 60%.
In fact, CTOS has received approval from the Securities Commission and RAM to increase its shareholding in RAM to beyond 20% and most analysts are positive about this development.
RHB Research said the potential valuation for the GO could range between RM260mil and RM300mil and will be fully funded by debt financing and internal funds.
It said the 19.9% stake owned by Creador, who also owns a 30% stake in CTOS, could potentially be sold at a discount to the GO price and be deemed as a related party transaction upon an independent advisor’s recommendation.
Kenanga Research said the move is seen to be earnings accretive, which would open new opportunities for the group in the bond rating space, as well as including value-enhancing offerings to clients.
Hong Leong Investment Bank (HLIB) Research said RAM is a bond ratings leader with about 65% market share.
With this, CTOS looks to leverage on RAM’s leadership to penetrate into new addressable markets, particularly in the space of smaller bond issuances and high yields, targeting the under-tapped SME segment.
CTOS has identified there are 8,500 local companies with yearly revenue of RM50mil to RM500mil, which it could potentially serve through RAM.
There is also an opportunity to tap into RAM’s large corporate customer pool to cross sell data and digital solutions, said HLIB Research.
Besides this, management finds that RAM still has a lot of room to grow in the area of non-credit rating offerings, like market intelligence and analytics. Also, RAM would enhances CTOS’ positioning as an expert in credit assessment, HLIB Research added.
RHB Research said, to put into perspective, the size of this potential acquisition is only up to 20% of CTOS’ total assets.
On a proforma basis, it could potentially contribute an additional 5% to 7% to financial year FY23 profit, while gearing could rise to 35% from the current 14%.
UOB Kay Hain Malaysia Research believes that both RAM and CTOS would benefit from an acquisition. To date, CTOS has acquired a 19.2% stake in RAM for RM49.6mil. This implies a blended equity valuation of RM258.2mil, UOB Kay Hain said.
It added that based on this blended equity valuation of RM258mil and RAM’s FY22 net profit forecast of RM14mil by CTOS management, the acquisition valuation is about 18 times FY22 price-to-earnings.
Also note that RAM has up to RM200mil net cash and property, and the board is considering paying special dividends after determining capital requirements.
CTOS shares closed up two sen at RM1.23 yesterday giving it a market capitalisation of RM2.8bil.
