Revenue growth to stay positive for CTOS

PETALING JAYA: CTOS Digital Bhd’s prospects remain robust despite its management’s cautious stance on internal targets for this year.

This is underpinned by the company’s diversified business model, strong market position and expanding opportunities in the Asean region.

Analysts maintained a positive outlook on the credit reporting agency’s medium to long-term growth trajectory despite trimming their near-term earnings forecasts for CTOS.

Maybank Investment Bank Research (Maybank IB Research) highlighted that while revenue growth momentum in CTOS’ core segments remained encouraging, key-account revenue deferrals to this year prompted a downward revision of earnings by 9% for this year and next year.

The research house maintained its “buy” call with a lower target price of RM1.40.

“Despite strong momentum moving into this year across all key segments, management has dialled down its internal revenue and profit targets for this year on account of weakening sentiment among consumers and small and medium enterprises,” the research house said.

However, Maybank IB Research did not rule out potential earnings surprises, noting: “We don’t discount the possibility that management is erring on the side of caution following missed quarterly guidance in the first half of last year and that CTOS’ 2025 earnings could surprise on the upside.”

RHB Research expressed confidence in CTOS as a proxy to the secular digitalisation trend and its resilient business model.

Despite the second downward revision of CTOS’ internal earnings target to between RM118mil and RM123mil from RM125mil to RM130mil) RHB Research maintained a “buy” recommendation with a revised target price of RM1.49.

The research house pointed to CTOS’ robust project pipeline, commenting: “The project pipeline remains robust across key accounts and the commercial segments, where both new activations and recurring consumption are expected to grow amid digitalisation and regulation-driven needs.”

RHB Research added that JurisTech, RAM Holdings and Business Online were expected to contribute positively, supporting CTOS’ medium-term growth.

Meanwhile, Kenanga Research, which trimmed its FY25 earnings forecast by 7%, noted that its estimates remained within CTOS’ targeted revenue range of RM342mil to RM362mil.

While maintaining an “outperform” call with a lower discounted cash flow-driven target price of RM1.50, the research house took a conservative stance on margins due to potential hindrances in higher-margined projects.

Nonetheless, the research house remained optimistic about CTOS’ market leadership and regional growth prospects.

“Although the group is typically forthcoming with its earnings guidance, there could still be room for upside surprises should its regional ventures perform better than expected,” said the research house.

Meanwhile, Hong Leong Investment Bank Research (HLIB Research) echoed the positive sentiment, underscoring growth opportunities across all business segments.

HLIB Research, which kept a “buy” call with a reduced free cash flow to firm-based target price of RM1.40, noted: “In key accounts, revenue should gain traction following higher take-up for its solutions and services, coupled with the crystallisation of its digital-solution contract delay.”

The research house also highlighted potential gains from the commercial segment, digital-to-consumer partnerships and international business expansion.

For FY24, CTOS posted a net profit of RM106.3mil, down 10%, while revenue climbed 16.6% to RM304.7mil – a new all-time high since its initial public offering in 2021 – up from RM261.4mil previously.

The group declared a fourth interim single-tier dividend of 0.99 sen per share for the three months ended Dec 31, 2024, bringing the total FY24 dividend payout to RM75.1mil, with a 71% payout ratio.