CTOS Digital’s IPO share valuation gets analysts backing


CTOS Digital Bhd’s IPO to institutional and retail investors has been fixed at RM1.10 a share with the company expected to raise RM220 million.

The set price is at a slight discount to Public Investment Bank Bhd (PublicInvest) fair value (FV) of RM1.16 for CTOS shares, pegged at a 40 times price earnings (PE) multiple to financial year 2022F (FY22F) earnings per share (EPS) of 2.9 sen.

“The higher multiple is in line with its captive market share and market-leading industry position, while also underpinned by its regional expansion plans and regional peer valuations,” the bank noted in a recent report on CTOS Digital.

It added if CTOS Digital fails to maintain its pioneer status, its effective tax rate will be at 24% (versus 6% currently), thereby lowering FY22 EPS to 2.3 sen (94 sen FV).

JF Apex Securities Bhd has derived a FV of RM1.25 for CTOS Digital-based on 50 times FY21F EPS of 2.5 sen with a ‘Subscribe’ recommendation.

“We believe the high multiple is justified given its dominant position in the industry under the current digital era and higher growth potential than the established players, such as TransUnion, Equifax Inc and Experian plc in advanced countries which trade at 30 times to 40 times forward PE,” it noted in a recent report.

CTOS Digital would be using 70.5% of the proceeds to repay bank borrowings with another 26.7% used for acquisitions to be identified, PublicInvest stated.

“CTOS Digital intends to continue developing and extending its ecosystem with investment in new databases and innovation of new value-added digital solutions for its customers with a focus on data and analytics as well as digital transformation, in accordance with the latest industry trends,” PublicInvest noted.

These new technologies would increase the group’s digital solutions’ predictability of potential payment defaulters based on historical data points.

“Through the industry’s high barriers to entry and the strong synergies, the group enjoys from its subscribers and database ecosystem, CTOS Digital is in an advantageous position to further grow its market share locally and maintain its market share leadership position in Malaysia’s credit reporting industry,” PublicInvest revealed.

With more than 170 employees, the group has a large commercial sales team while its direct-to-consumer customers are predominantly digital and are handled by its marketing team, which are well-trained. It also focuses on long-term relationships with customers.

Despite its strengths and positions in the credit risk management market, CTOS Digital has many competitors which vary in size, financial and technical capability as well as the scope of the products and services they offer.

It is also vulnerable to cybersecurity incidents due to the sensitive nature of the information the group or its data providers collect, store and transmit.

Therefore, it is common for efforts to occur by unauthorised persons to attempt to obtain access to CTOS Digit’ systems or data or to inhibit its ability to deliver its digital solutions to its customers.

Another challenge is to maintain the integrity of its databases.

“There can be no assurance that CTOS Digital will be able to identify and update stale or inaccurate information in its information databases in a timely manner or at all,” PublicInvest warned.


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