CTOS charts new course after missteps

CTOS Digital Bhd is embarking on a different kind of journey this year – one that’s grounded in pragmatism and reinvention, following a series of lacklustre quarters and leadership transitions.

The credit reporting agency, led by interim chief executive officer Kevin Loh since May 1, is hoping to reclaim investor trust through a multi-pronged strategy.

Loh, who has over 29 years of experience in consulting, acknowledges there were missteps last year, and those needed to be corrected urgently.

“These included investments in products that didn’t make sense because they did not generate the revenue intended.

“Then there were investments in people that we do not have an issue with, but sometimes when they’re not delivering the outcomes that you want, you need to optimise,” he tells StarBiz 7 in a recent interview.

And so the group held an exercise, mutual separation scheme, at the beginning of April.

It was completed by the following month.

The group saw a one-off cost of close to RM1mil from the exercise.

Loh says investing with a purpose is critical, whether it is via profit efficiency but all in all, the investments need to benefit the organisation and its shareholders.

Those weren’t the only pressures.

Analysts had turned cautious about the stock, with many downgrading their calls and revising earnings.

Loh says he isn’t surprised.

“To be fair to analysts, we have underperformed in what we guided, I would say in the last three quarters,” he says.

To recap, CTOS has registered growth of between 20% and 25% in topline starting from 2022 until 2024.

However, for the first half of financial year 2025, CTOS recorded a much smaller growth of 5%.

“Key accounts which sell to banks, telcos and corporates saw a revenue decline of 2% but this was because in the second quarter of last year, we had a portfolio scrub with a bank,” he says.

He explains this happens on a one-time basis, and that inflated the numbers for 2024.

Other than that, the segment actually grew between 5% and 6%, similar to the banking loan growth in Malaysia.

Additionally, the international business segment, namely Indonesia and the Philippines, registered flat growth.

Loh explains that among the two big clients CTOS had in this particular market, one decided to purchase data once a year instead of on a quarterly basis.

Loh did not disclose which country this was.

With an unbanked population of 60%, Loh is confident of the potential, growth opportunities and market share.

Nevertheless, Loh says the past is behind them and they are looking ahead with optimism.

“The focus is on having the right strategies and executing them well so that we can deliver the numbers we want to.

I think we do have the right strategies to capitalise on the growth opportunities,” he says, adding they have not tapped up to their full potential yet.

For financial year 2025 (FY25), Loh says CTOS will look at achieving between RM85mil and RM90mil in profit, withe a few key factors driving this.

One of the crucial ones are the new products that have just gone into the market.

“We have a new product for fraud and two for analytics that can help lenders access credit better. There are four other products in discussion at the moment – two to three have a very strong market fit and are in development as we speak. These, however, will take time, so we will likely see the yield only next year,” he says.

Loh says as for the upgrading of CTOS’ stock, analysts are likely to wait for third quarter numbers than do an extrapolation.

“I think it boils down to knowing what went wrong and fixing it. The many changes have put us in pretty good stead for the second half, and will enable us to exit this year much stronger,” he says.

He expects the key accounts segment to see about 10% growth long-term over the next three to four years, while commercial should hit between 8% and 10% growth.

Kenanga Research Clement Chua Min Tze tells StarBiz 7 that CTOS’ potential is underpinned by sustained growth in the broader economy and financial services sector, including lenders, insurers and related segments.

“While short-term demand for these services may soften from ongoing headwinds, the structural trajectory points to continued expansion, supported by rising gross domestic product, return in general consumption and population growth in the domestic market,” Chua explains.

He says as a market leader with an estimated 70% share, CTOS is well-positioned to benefit from the growth of the digital economy.

“Its key accounts portfolio already includes major financial institutions, including digital banks, which places the group at the forefront of evolving demand for digital credit and risk solutions,” Chua says.

He also adds, based on CTOS’ fundamentals and current price-to-earnings ratio, the group is fairly valued, as it factors in near-term uncertainties surrounding revenue growth and margin outlook.

“We also note that the group’s project-based services in the international segment could contribute lower-margin compared to its core domestic services.”

Chua explains the international segment is driven by project-based contracts, so their margins are subject to commercial negotiations.

As to what caused the dip in margins, Chua says some dilution was seen recently due to investment-related costs being recognised under cost of sales.

“This will persist in the coming quarters. However, it is expected to normalise by FY26, once the full expense has been accounted for.”

RHB Investment Bank Bhd senior research analyst Lee Meng Horng says relative to the industry’s average, he believes CTOS remains undervalued, especially given the stability in its core business, high barrier of entry and strong cash flow generation.

Lee reckons the dip in margins was due to certain investments in new solutions, marketing, licensing and human costs.

Nevertheless, Lee says there is still potential for the group in capturing the credit reporting segment amid the digitalisation trend in Asean.

“The various solutions within CTOS and its associate companies like JurisTech and RAM Holdings Bhd have different solutions catering to different needs, from financial institutions to telecommunication companies to small and medium enterprises.”