CTOS pullback in share price an overreaction by investors

The biggest downside risk for CTOS is the event where CTOS’ database has indeed been compromised, says analyst

by S BIRRUNTHA / Pic credit: ctosdigital.com

CTOS Digital Bhd’s share price pullback is an overreaction and RHB Investment Bank Bhd advised investors to buy on weakness as there is no evidence the group is guilty of any data leak and its structural growth thesis remains intact.

RHB’s analyst Liew Wai Hoong stated that the biggest downside risk for CTOS is the event where CTOS’ database has indeed been compromised.

“At this juncture, it appears the alleged leak did not originate from CTOS but we do not rule out the remote possibility of any compromise revealed by the assessment.

“In this unlikely event, we could see a serious valuation derating,” he noted in a research note yesterday.

Liew has maintained a ‘Buy’ call on CTOS with a target price of RM2.36. The stock closed five sen lower at RM1.87 yesterday in active trading.

He added that under the worst-case scenario, CTOS will lose RM14 million in revenue and record a RM10 million loss per month.

Liew added that the worst-case scenario assumes the assessment will take a quarter to finish, and all lenders stop using CTOS’ services during the fourth quarter ending Dec 31, 2021 while all costs are fixed.

“We deem this situation highly unlikely given the level of disruptions to the financial system, especially for non-bank lenders.

“This would likely result in tightening in lending especially to the B40 (bottom 40%) income group, which goes against Bank Negara Malaysia’s agenda,” he noted.

Last Friday, CTOS’ wholly owned subsidiary, CTOS Data Systems Sdn Bhd, received a directive from BNM to temporary suspend access to Central Credit Reference Information System for all credit reporting agencies (CRAs) with effect from Oct 1, 2021.

The central bank stressed such a measure is proactive and preemptive in nature in light of the recent alleged data leak involving various governmental bodies such as the National Registration Department and Inland Revenue Board.

The central bank promised access will resume once the CRAs complete data security assessments.

According to CTOS, the temporary suspension is a proactive, precautionary and necessary step against potential cyberthreats and possibility of data leak incidents in the credit reporting industry.

“Pursuant to BNM’s suspension decision, we will momentarily halt reports and services containing CCRIS information on our platform,” it noted.