KUALA LUMPUR (Aug 2): RHB Research maintained its “buy” call on CTOS Digital Bhd (KL:CTOS) with a lower target price of RM1.73 (from RM1.84), despite missing expectations in its recent quarterly results.
In a note on Friday, RHB said: “Despite the unorthodox earnings miss, we believe CTOS Digital is set to continue benefitting from the secular digitalisation trend and growth in financial literacy with a recession-proof business model”.
Meanwhile, RHB said CTOS’ 1H2024 profit after tax and minority interest (Patami) missed expectations, at only 21% of the house’s and consensus’ full-year forecasts.
This was mainly due to lower-than-expected contributions from associates, and higher-than-expected hiring and marketing costs.
CTOS posted a sequentially higher core Patami of RM26.1 million (+22.6%), attributed to stronger revenue (+7.1%) and higher contributions from associates, it said.
Year-on-year (y-o-y) comparisons showed a stronger revenue growth of 23.1% to RM76.6 million, thanks to growth across all business segments, it added.
However, RHB said CTOS’ management has lowered FY2024 internal profit targets to the RM110 million-RM115 million range, from the previous RM125 million-RM130 million, mainly on slower-than-planned implementation of digital solutions and additional sales team hires.
“Stronger 2H2024 expectations are supported by robust pipeline and customer conversions, seasonally stronger demand for reports, and portfolio analytical and digital solutions domestically and internationally,” RHB said, adding that FY2025 targets are maintained at the RM150 million-RM160 million range.
Commercial segments will also accelerate with broader sales funnels and a surge in cross-selling opportunities, the research house added.
“We cut our FY2024F-FY2026F (forecast) earnings by 9.8%, 3.4% and 1.8%, after factoring in higher cost assumptions and slower contributions from associates.
“Consequently, our DCF (discounted cash flow)-derived target price is now lowered at RM1.73, with a 4% ESG (environmental, social, and governance) discount baked in,” it said.
A downside risk is the regulatory environment changes, slower-than-expected topline growth, and data security breaches, RHB added.