KUALA LUMPUR (March 7): BIMB Securities has started coverage on credit reporting agency CTOS Digital Bhd (KL:CTOS), citing superior forward return on equities (ROEs) and stronger long term growth potential as an attractive re-rating opportunity.

CTOS posted an ROE of 17.1% in 2024, and BIMB Securities estimates an ROE of 17.9% for 2025 and 18.9% each for 2026 and 2027.

The firm believes the stock, which currently trades at a 24% discount to global peers, has all the qualities to be a long-term core investment holding.

It was trading 0.91% higher earlier at RM1.11 a share, giving it a market capitalisation of RM2.56 billion. All 11 analysts covering the stock have a “buy” call on it.

BIMB Securities has attached a RM1.33 target price for the stock, based on the company's projected FY2025 price-to-free-cash-flow ratio, the best metric for valuing credit reporting agencies due to their strong cash flow and focus on shareholder returns.

In a note on Friday, BIMB highlighted CTOS’ strong growth potential locally and across Asean, driven by low penetration rates and increasing digitalisation efforts. With a scalable model, CTOS is set for capital-efficient, value-accretive growth.

It said despite being smaller than global peers, CTOS’ high recurring revenue, dominant market position, and favourable regulatory environment justify a fair valuation multiple.

CTOS commands a dominant market share in Malaysia, leveraging its first-mover advantage and strong customer service to drive retention, with over 90% of revenues from recurring customers.

The research house forecasts CTOS’ FY2025 revenue growth at 12%-19%, with profit after tax and minority interests (Patami) expected to rise by 10%-15%.  

It said Patami growth will trail behind revenue expansion, as contributions from associates increase at a slower pace. 

CTOS’ net profit fell 42.2% to RM32.39 million for the fourth quarter ended Dec 31, 2024 (4QFY2024), from RM56.01 million a year ago, largely due to higher tax expenses arising from the absence of a tax credit.

Founded in 1990 and operational since 1992, CTOS operates a subscription-based and transactional revenue model, catering to both business-to-business and business-to-consumer segments.

It holds a 26% stake in competitor Experian, a 49% stake in Juris, and a 24.8% stake in Thailand’s Online Public Company Ltd.

CTOS also owns a 57.7% interest in bond ratings agency RAM Holdings, though it remains an associate investment without management control.