KUALA LUMPUR (Oct 30): Analysts see CTOS Digital Bhd posting a record-breaking year for the financial year ending Dec 31, 2023 (FY2023), as the credit reporting group’s latest quarterly earnings came within expectations, and growth momentum anticipated to continue. 

For the third quarter ended Sept 30, 2023 (3QFY2023), CTOS posted a core profit of RM29.1 million and  brought its core earnings for the nine-month period (9MFY2023) to RM75.4 million — within expectations at 72% of consensus FY2023 forecasts, according to RHB Research. 

“9MFY2023 core profit of RM75.4 million (up 17.1% year-on-year) met expectations, supported by strong core operational performances and higher share of profit from associates,” the research house said in a note on Monday.

With CTOS’ 3QFY2023 results coming in line with expectations, RHB Research maintained its “buy” call on the counter with a maintained discounted cash flow-derived (DCF) target price (TP) of RM1.89. 

The research house also noted that CTOS has also secured a second five-year tax exemption extension from the Ministry of Finance, which will last until 4QFY2026. “There will be a reversal of RM27.8 million in tax provision from Nov 30, 2021 to Sept 30, 2023, to be recognised in 4QFY2023,” it added. 

Premised on the growth of the group’s various digital solutions and analytical insights, as well as potential new verticals, acquisitions, and increased footprint, it  has forecasted CTOS to post a record-breaking net profit of RM104 million in FY2023, RM121 million in FY2024, and RM141 million in FY2025.

According to Kenanga Research, CTOS has provided a normalised earnings guidance of RM100-105 million for FY2023, RM127-135 million for FY2024, and RM150-160 million FY2025.

In view of CTOS’ (9MFY2023) earnings coming within the house’s expectations, the research house maintained its “outperform” call with a higher DCF-based TP of RM1.85 (previously RM1.80).

Meanwhile, HLIB Research also reiterated its “buy” call on the stock with an unchanged TP of RM1.75 — based on an implied 34 times FY2024 price-to-earnings ratio with assumptions of 8.3% weighted average cost of capital and 5% terminal growth.

“Rain or shine, we still believe that CTOS will grow at a fast rate in 4QFY2023 given its defensive business model that has resilient revenue streams. 

“Furthermore, newly onboarded clients should begin to ramp up adoption of CTOS’ products and services. Also, the expansion into new verticals will help to boost revenue growth in the short and medium term,” it said. 

In addition, CTOS’ associate companies have seasonal earnings performance, where 2H (the second half of the year) typically will be stronger,” it added.