CTOS DIGITAL BERHAD
KLSE (MYR): CTOS (5301)
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Goldberg
2,914 posts
Posted by Goldberg > 2021-08-09 12:01 | Report Abuse
CTOS Digital - Growth Is Apparent
Publish date: Mon, 9 Aug 2021, 10:00 AM
CTOS has acquired an additional 2.65% in Business Online PCL (BOL) for a fair price of RM26.8m (FY20 PER of ~44x vs. peers’ 40x). The faster-than-expected acquisition, alongside plans to tap into new sectors with tremendous growth potential, reassures us of CTOS’ earnings growth in the coming years. Raise FY21-22E earnings by 2-4%. Reiterate OP with a higher TP of RM1.75 @ FY22E PER of 55x (from 45x) justified by: (i) market dominance in an underpenetrated Malaysia, (ii) more robust industry/company earnings growth, and (iii) scarcity premium.
Second post-listing acquisition. CTOS announced that it has acquired an additional 2.65% (or 21.74m shares) in Business Online PCL (BOL) for RM26.8m, raising its total stake to 22.65% (or 185.84m shares). BOL is the dominant credit bureau (59% market share) in Thailand. The acquisition came as a positive surprise (timing-wise) as CTOS had just completed its 4.625% acquisition in RAM Holdings (RAM) on 29 July 2021.
Fair price. The acquisition price translates to FY20 PER of ~44x, which is in line with global peers’ ~40x. We estimate BOL contribution of RM6.5-7.8m to CTOS’ FY21-22E bottom-line. The increased stake in the Thai leading credit bureau BOL (~59% market share) allows CTOS to further tap into an underpenetrated Thailand (~57% penetration vs. developed U.S. & UK’s 100%). Note that BOL’s 1HFY21 earnings are ~30% higher year- on-year.
More confident on growth. From IPO proceeds earmarked for acquisitions (RM58.7m), the group has utilized ~63% (or RM36.9m) for earnings accretive acquisitions (RAM & BOL) in <1 month of listing. The faster-than-expected acquisitions, coupled with plans to tap into new sectors with tremendous growth potential such as automotive, insurance and real estate (combined 2021-25 CAGR of 50.6%) have boosted our confidence in CTOS’ earnings growth in the coming years. Post-BOL acquisition, we estimate CTOS’ cash balances at ~RM35m with RM21.8m IPO proceeds earmarked for strategic investments. Thereafter, CTOS should be able to fund investments (~10% of net assets), without the need to raise additional capital.
Raise FY21E/FY22E CNP by 2%/4% on higher BOL contribution.
Reiterate OUTPERFORM with a higher TP of RM1.75 (from RM1.40) based on higher FY22E PER of 55x (from 45x), at a 57% premium to peers justified by its: (i) market leader status with 71.2% share in an underpenetrated market, (ii) more robust industry growth (2021-25E CAGR of 13.2%) vs. peers concentrated in developed nations such as U.S. (7.5%), and U.K. (5.3%), (iii) superior earnings growth of 50-20% (vs. peers’ 12-14%), as well as (iv) scarcity premium for an ASEAN-listed credit rating agency (where the growth potential is high).