Company Update

09 August 2021

CTOS Digital OUTPERFORM ↔

Price: RM1.56
Growth Is Apparent Target Price: RM1.75 ↑
By Adrian Kok Xi Feng l [email protected]

CTOS has acquired an additional 2.65% in Business Online PCL (BOL) Share Price Performance
for a fair price of RM26.8m (FY20 PER of ~44x vs. peers’ 40x). The 1.70

faster-than-expected acquisition, alongside plans to tap into new 1.60

sectors with tremendous growth potential, reassures us of CTOS’ 1.50

earnings growth in the coming years. Raise FY21-22E earnings by 2-4%.
1.40
Reiterate OP with a higher TP of RM1.75 @ FY22E PER of 55x (from
1.30
45x) justified by: (i) market dominance in an underpenetrated
Malaysia, (ii) more robust industry/company earnings growth, and (iii) 1.20

scarcity premium. 1.10

1.00
Second post-listing acquisition. CTOS announced that it has acquired an
additional 2.65% (or 21.74m shares) in Business Online PCL (BOL) for
RM26.8m, raising its total stake to 22.65% (or 185.84m shares). BOL is the
dominant credit bureau (59% market share) in Thailand. The acquisition came KLCI 1,489.80
as a positive surprise (timing-wise) as CTOS had just completed its 4.625% YTD KLCI chg -8.4%
acquisition in RAM Holdings (RAM) on 29 July 2021. YTD stock price chg n.a.

Fair price. The acquisition price translates to FY20 PER of ~44x, which is in line Stock Information
with global peers’ ~40x. We estimate BOL contribution of RM6.5-7.8m to Shariah Compliant Yes
CTOS’ FY21-22E bottom-line. The increased stake in the Thai leading Bloomberg Ticker CTOS MK Equity
credit bureau BOL (~59% market share) allows CTOS to further tap into Market Cap (RM m) 3,432.0
an underpenetrated Thailand (~57% penetration vs. developed U.S. &
Shares Outstanding 2,200.0
UK’s 100%). Note that BOL’s 1HFY21 earnings are ~30% higher year-
52-week range (H) 1.76
on-year.
52-week range (L) 1.50
More confident on growth. From IPO proceeds earmarked for acquisitions 3-mth avg daily vol: n.a.
(RM58.7m), the group has utilized ~63% (or RM36.9m) for earnings accretive Free Float 100%
acquisitions (RAM & BOL) in <1 month of listing. The faster-than-expected Beta n.a.
acquisitions, coupled with plans to tap into new sectors with tremendous
growth potential such as automotive, insurance and real estate (combined Major Shareholders
2021-25 CAGR of 50.6%) have boosted our confidence in CTOS’ earnings
Inodes 40.0%
growth in the coming years. Post-BOL acquisition, we estimate CTOS’ cash
balances at ~RM35m with RM21.8m IPO proceeds earmarked for strategic Chung Tze Keong 4.5%
investments. Thereafter, CTOS should be able to fund investments (~10% of Chung Tze Wen 4.5%
net assets), without the need to raise additional capital.
Summary Earnings Table
Raise FY21E/FY22E CNP by 2%/4% on higher BOL contribution. FYE Dec (RM m) 2020A 2021E 2022E
Reiterate OUTPERFORM with a higher TP of RM1.75 (from RM1.40) based Revenue 140.5 163.1 187.9
on higher FY22E PER of 55x (from 45x), at a 57% premium to peers justified by EBIT 42.8 53.4 63.6
its: (i) market leader status with 71.2% share in an underpenetrated market, PBT 40.3 62.9 75.7
(ii) more robust industry growth (2021-25E CAGR of 13.2%) vs. peers PATAMI 39.2 58.7 70.6
concentrated in developed nations such as U.S. (7.5%), and U.K. (5.3%), (iii) Core NP 39.2 58.7 70.6
superior earnings growth of 50-20% (vs. peers’ 12-14%), as well as (iv) scarcity Consensus (NP) n.a. 54.4 71.3
premium for an ASEAN-listed credit rating agency (where the growth Earnings Revision n.a. 2% 4%
potential is high). Core EPS (sen) 1.8 2.7 3.2
Core EPS growth (%) 0.5 49.7 20.3
NDPS (sen) N.A. 1.6 1.9
BV/Share (RM) 0.05 0.14 0.15
Core PER 87.6 58.5 48.6
Price/BV (x) 31.0 11.0 10.1
Net Gearing (x) 0.9 Net Cash Net Cash
Net Dvd. Yield (%) N.A. 1.0 1.2

PP7004/02/2013(031762) Page 1 of 4
CTOS Digital Company Update
09 August 2021

Income Statement Financial Data & Ratios

FY Dec (RM m) 2018A 2019A 2020A 2021E 2022E FY Dec 2018A 2019A 2020A 2021E 2022E
Revenue 110.5 129.1 140.5 163.1 187.9 Growth (%)
EBIT 31.9 41.7 42.8 53.4 63.3 Revenue N.A. 16.9 8.8 16.1 15.2
PBT 31.8 41.2 40.3 62.9 75.3 EBIT N.A. 30.7 2.6 24.9 18.4
Taxation -2.1 -2.2 -2.4 -4.2 -5.1 PBT N.A. 29.7 -2.2 55.9 19.8
PATAMI 29.7 39.0 39.2 58.7 70.3 PATAMI N.A. 31.5 0.5 49.7 19.7
Core PATAMI 29.7 39.0 39.2 58.7 70.3 Core PATAMI N.A. 31.5 0.5 49.7 19.7

Balance Sheet Profitability (%)

FY Dec (RM m) 2018A 2019A 2020A 2021E 2022E EBIT Margin 28.9 32.3 30.4 32.8 33.7
Fixed Assets 17.5 16.9 16.9 42.1 52.4 PBT Margin 28.8 31.9 28.7 38.5 40.1
Intangible Assets 37.9 37.9 49.6 79.1 79.1 Core PATAMI Margin 26.8 30.2 27.9 36.0 37.4
Oth. Fixed Assets 0.0 59.8 154.9 152.4 152.4 Effective Tax Rate 6.7 5.4 5.8 6.7 6.7
Inventories - - - - - ROE 33.5 27.4 14.2 17.2 18.9
Receivables 17.9 21.4 28.2 32.6 37.6 ROA 49.4 49.4 33.9 18.8 20.7
Other CA 5.0 0.0 0.0 0.0 0.0
Cash 10.2 6.1 26.4 34.6 50.3 DuPont Analysis
Total Assets 88.6 142.2 276.0 340.7 371.8 C. Net Margin (%) 26.8 30.2 27.9 36.0 37.4
Assets T’over (x) 1.2 0.9 0.5 0.5 0.5
Payables 13.7 13.6 17.1 19.6 22.5 Lev. Factor (x) 1.5 1.8 2.4 1.1 1.1
ST Borrowings 5.9 18.2 132.3 0.0 0.0 ROE (%) 49.4 49.4 33.9 18.8 20.7
Other ST Liability 2.9 20.1 10.0 0.0 0.0
Other LT Liability 6.2 11.4 0.8 9.6 9.6 Leverage
Net Assets 60.0 78.9 115.7 311.5 339.6 Debt/Asset (x) 0.1 0.1 0.5 0.0 0.0
Debt/Equity (x) 0.1 0.2 1.1 0.0 0.0
Share Capital 198.0 198.0 198.0 411.9 411.9 Net Cash/(Debt) -4.4 12.1 105.9 -34.6 -50.3
Reverse Acq. Net Net Net
-193.5 -193.5 -193.5 -193.5 -193.5 Net Debt/Equity (x) 0.2 0.9
Reserve Cash Cash Cash
Retained Earnings 54.3 71.5 106.0 92.5 120.6
Others 1.3 2.9 0.3 0.6 0.6 Valuations
Minority Interest 0.0 0.0 5.0 0.0 0.0 Core EPS (sen) 1.3 1.8 1.8 2.7 3.2
Total Equity 60.0 78.9 115.7 311.5 339.6 DPS (sen) N.A. N.A. N.A. 1.6 1.9
BV/share (RM) 0.03 0.04 0.05 0.14 0.15
Cashflow Statement PER (x) 115.7 88.0 87.6 58.5 48.9
FY Dec (RM m) 2018A 2019A 2020A 2021E 2022E Div. Yield (%) N.A. N.A. N.A. 1.0 1.2
Operating CF 37.5 48.8 49.6 67.4 78.8 P/BV (x) 57.2 43.5 31.0 11.0 10.1
Investing CF -10.1 -58.9 -104.0 -36.9 -21.8
Financing CF -23.6 5.5 74.1 -35.2 -42.2
Source: Kenanga Research

PP7004/02/2013(031762) Page 2 of 4
 CTOS Digital Company Update
09 August 2021

Peer Comparison
Name Last Market Shariah Current Revenue Growth Core Earnings Growth PER (x) - Core Earnings PBV (x) ROE Net Div. Target Price Rating
Price Cap Compliant FYE (%) Yld. (%) (RM)
1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 2-Yr. 1-Yr. 1-Yr. 1-Yr.
Hist. Hist.
(RM) (RM'm) Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd. Fwd.
STOCKS UNDER COVERAGE
AEON CREDIT SERVICE M BHD 11.68 2,982.0 N 02/2022 10.0% 9.9% 44.8% 14.1% 13.3 9.2 8.1 1.8 1.5 16.6% 3.1% 14.00 OP
BURSA MALAYSIA BHD 7.58 6,134.5 Y 12/2021 -2.7% -4.9% -4.0% -8.9% 16.1 16.9 18.5 6.8 6.6 39.6% 5.4% 8.20 OP
CTOS DIGITAL BHD 1.56 3,432.0 Y 12/2021 16.1% 15.2% 49.7% 19.7% 87.6 58.5 48.9 31.0 11.0 27.5% 1.0% 1.75 OP
LPI CAPITAL BERHAD 13.92 5,545.5 N 12/2021 2.9% 4.0% 2.4% 2.9% 16.5 16.1 15.6 2.7 2.5 16.3% 5.3% 14.20 MP
SYARIKAT TAKAFUL MALAYSIA KELUARGA BHD 4.30 3,593.2 Y 12/2021 4.9% 1.7% 3.9% -9.2% 9.8 9.5 10.4 2.4 2.1 23.3% 4.7% 5.85 OP
Simple Average 6.3% 5.2% 19.4% 3.7% 28.7 22.0 20.3 8.9 4.7 24.7% 3.9%
Source: Bloomberg, Kenanga Research

PP7004/02/2013(031762) Page 3 of 4
CTOS Digital Company Update
09 August 2021

Stock Ratings are defined as follows:

Stock Recommendations

OUTPERFORM : A particular stock’s Expected Total Return is MORE than 10%

MARKET PERFORM : A particular stock’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERPERFORM : A particular stock’s Expected Total Return is LESS than -5%

Sector Recommendations***

OVERWEIGHT : A particular sector’s Expected Total Return is MORE than 10%

NEUTRAL : A particular sector’s Expected Total Return is WITHIN the range of -5% to 10%
UNDERWEIGHT : A particular sector’s Expected Total Return is LESS than -5%

***Sector recommendations are defined based on market capitalisation weighted average expected total return for
stocks under our coverage.

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any
representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment
objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of
addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability
whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities.
Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities
mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with
respect to these companies.

Published and printed by:

KENANGA INVESTMENT BANK BERHAD (15678-H)

Level 17, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia
Telephone: (603) 2172 0880 Website: www.kenanga.com.my E-mail: [email protected]

PP7004/02/2013(031762) Page 4 of 4