KUALA LUMPUR: CTOS Digital Bhd (CTOS) is seen growing at a quick rate given its defensive business model that has resilient revenue streams, despite potentially slower economic growth this year, said Hong Leong Investment Bank (HLIB).
CTOS’ expansion into “new verticals” and the emergence of digital banks would help boost its revenue growth in the short and medium term, it added.
“For longer term prospects, it is also bright, considering the industry is underpenetrated where ASEAN credit reporting revenue per capita is 38-56 times smaller versus developed nations like the United States and the United Kingdom.
“We like CTOS for its market leadership, strong economic moat, and highly scalable business model.
“Retain ‘buy’ rating and ‘free cash flow to the firm’ (FCFF)-target price (TP) of RM1.70,” said HLIB in a research note. Kenanga Research expects the group to continue reaping benefits from the growing demand for data and analytics which are expedited by the increasing digitalisation of business operations.
Its main key accounts include financial institutions, telecommunication service providers, and possibly insurers which are increasing digitalisation of their operations on almost all fronts.
“The relevance of credit reporting is expected to rise, especially with their clientele doubling efforts to mitigate asset quality risks and to improve the health of their books.
“On the flip side, the group aims to increase average revenue per unit (ARPU) by cross-selling as opposed to raising prices which we believe could also help to develop greater customer stickiness,” said Kenanga Research, which is maintaining an ‘outperform’ call with discounted cash flow (DCF)- driven TP of RM1.80.
RHB Investment Bank also reiterated a ‘buy’ recommendation with a target price of RM1.92 on the company’s better performance across all its business segments in the first quarter.
“We believe the stability of demand for CTOS’s various solutions will continue to bode well in the current uncertain environment, especially in the technology sector, where most semiconductor-related names are in a down-cycle.
“Its high margins, solid cash flow generation, and strong return on equity (ROE) are among its strengths,” RHB said.
Downside risks to its call include changes in the regulatory environment, slower-thanexpected topline growth, and data security breaches. – BERNAMA
