PETALING JAYA: The fallout from CTOS Digital Bhd
’s cybersecurity incident could prolong its earnings recovery, with extended service disruptions threatening customer confidence, pricing power and margins while driving up costs, analysts say.
Although management is targeting to complete the remaining independent validations and final regulatory submission by the end of October, the restoration timeline remains subject to Bank Negara Malaysia’s clearance, which is largely beyond the group’s control.
This leaves room for further delays, particularly if additional requirements emerge during the validation process, Hong Leong Investment Bank (HLIB) Research said.
The research house noted that management’s initial estimates of a RM16mil revenue and RM12mil net profit impact for financial year 2026 (FY26) assumed service restoration by the third week of October.
With that, each additional week of disruption could shave a further RM2.5mil off revenue and RM1.3mil off net profit.
Even after services are restored, HLIB Research projects a gradual recovery for CTOS, as customers may need time to reactivate their accounts and transaction volumes to normalise.
CIMB Research similarly cautioned that prolonged disruptions pose downside risks to CTOS’s fourth-quarter 2026 (4Q26) earnings forecasts, given the uncertainty surrounding regulatory approval.
It noted that the group is prioritising customer retention through interim workarounds and alternative solutions, alongside potential service fee waivers for affected customers.
However, the financial impact of these measures will only be quantified after services are restored.
While no material contract terminations were reported, new customer acquisitions and onboarding activities have effectively stalled over the past month.
CIMB Research said the group may need to offer credit notes and fee waivers, as well as defer selected price increases for up to 12 months to preserve customer relationships.
These concessions, coupled with unquantified compensation costs, could weigh on its FY27 earnings recovery, it added.
Meanwhile, delayed client onboarding and product activations could temper near-term revenue growth, while prolonged disruptions may give competing credit reporting agencies an opportunity to gain market share, particularly among commercial clients without direct access to the Central Credit Reference Information System or CCRIS.
Although management has yet to observe material contract terminations, partly because switching providers require additional application programming interface or API integration and development, it acknowledged rising risks to its wallet share.
Hence, even after services are restored, revenue recovery is likely to be gradual, with pricing power and margins remaining under pressure.
Additionally, potential cybersecurity insurance recoveries in FY27 could provide some relief, but the timing and quantum remain uncertain.
On a positive note, CTOS’s international operations, a key growth driver, remain unaffected by the late-September 2026 cybersecurity incident, with CTOS’ nine-month period of 2026 (9M26) revenue growing 31% year-on-year (y-o-y), providing some earnings resilience, CIMB Research said.
HLIB Research noted that despite flattish revenue growth of less than 1% quarter-on-quarter (q-o-q), CTOS’s profitability improved on lower cost of sales and operating expenses, which declined 6.2% and 7%, respectively.
Together with a 1.3-percentage point decline in its effective tax rate, core net profit rose 15.4% q-o-q.
For 9M26, revenue grew 7.5% y-o-y, supported by direct-to-customer and key accounts segments, which expanded 12.4% and 10.8%, respectively.
Core earnings outpaced revenue growth, rising 13.5%, underpinned by stronger contributions from associates and lower finance costs.
HLIB Research downgraded CTOS to “sell” from its previous rating, lowering its target price to 36 sen from 50 sen, based on a revised 14 times calendar year 2027 price-to-earnings (P/E) ratio.
“Our valuation sits at two standard deviations below its five-year forward P/E mean, reflecting our cautious stance amid diminished earnings visibility.
“Lingering uncertainties over customer confidence, potential client attrition and a structurally higher cybersecurity cost base warrant a deeper valuation discount, in our view.
“While the recent share price correction has partially priced in these concerns, we believe selling pressure could persist until there is greater clarity on system restoration, client retention and the eventual earnings recovery trajectory,” it said.
In contrast, RHB Research said that while the cybersecurity incident introduced near-term earnings uncertainties, CTOS’s management reiterated that its longer-term outlook remained structurally intact.
It urged investors to look beyond the setback and focus on the resilience of the group’s core solutions, robust cash flow generation, proactive capital management and improved return on equity.
This is reflected in RM89.4mil in capital returned during 9M26, including RM51.7mil in share buybacks, alongside the cancellation of 79.3 million treasury shares.
