KUALA LUMPUR: The trading stock of CTOS Digital Bhd
appears to have found support following the previous day's sharp decline on news of an unfavourable High Court ruling.
The shares of the credit agency opened three sen or 2.4% higher at RM1.28 apiece on Wednesday, a mild bounce after having lost 13.79% of its value in the previous session.
The counter was also one of the morning's most actively traded with 18.36 million shares exchanging hands by 9.50am.
Investors actively sold down the stock on Tuesday - which lost as much as 26.9% to hit an intraday low of RM1.06 - on news the High Court had ruled the group's subsidiary CTOS Data System Sdn Bhd did not have the power to formulate its own credit score, and is only allowed to be a repository of the credit information for its subscribers.
CTOS was also ordered to pay RM250,000 to businesswoman Suriati Mohd Yusuf, who had sued the agency for alleged "inaccurate credit rating".
In response to the court ruling, the credit agency said in a briefing it would appeal the court's decision over the defamation claim, but maintained the proceedings were not an injunction against its credit scoring facility.
The group said it had not overstepped its function by providing credit scoring services under the Credit Reporting Agencies Act (CRAA) 2010, and would carry out business operations as normal.
With the hearing for the Court of Appeal expected to take between three and six months, analysts are having mixed views over the prospects of the group moving forward
Hong Leong Investment Bank (HLIB) Research noted that credit scoring makes up 13% to 15% of CTOS's total revenue, which, if fully stripped away, would have 30% impact to the bottomline.
The research firm highlighted "winning" and "losing" scenarios for the group in its appeal against the court decision, both of which warrant a premium to its current market valuation.
"For 'winning', we have a free cash flow to firm (FCFF)- target price (TP) of RM1.75, based on an implied 34x FY24 price-earnings (PE) with assumptions of 8.3% weighted average cost of capital (WACC) and 5% TG.
"For 'losing', we have FCFF-TP of RM1.15, based on an implied 31x FY24 P/E (after 30% profit cut) with assumptions of 8.3% WACC and 5.0% TG," it said in a note.
HLIB said both scenarios have implied PEs above global peers' average of 25x and their five-year mean of 28x.
It added that the premium is backed by the underpenetrated Asean market with high growth potential.
"Overall, with share price already down >10%, we believe that the risk-reward now is skewed to the upside.
"We still like CTOS for its leadership position, strong economic moat, and highly scalable business model."
HLIB maintained its "buy" recommendation on CTOS but lowered its target price to RM1.45 from RM1.75 previously.
Kenanga Research said in its own report that it does not appear that "any injunction of any sort" will be sought against CTOS's credit scoring services.
However, it said the court’s interpretation still poses a challenge to CTOS’s business model until it is overturned by a higher court.
"We believe the onus is on CTOS to show that the court decision will have no impact on its day-to-day operations and financial performance," it said.
Kenanga maintained "underperform" on CTOS with an unchanged target price of RM1.15.
