HLIB Research said core earnings fell 25% on the back of seasonality.
PETALING JAYA: CTOS Digital Bhd
had a slow start for the financial year 2024 (FY24), dragged by seasonality and delayed projects, but analysts remain upbeat about stronger quarters ahead.
Hong Leong Investment Bank (HLIB) Research said CTOS’ first-quarter (1Q24) core profit ticked up only 3% year-on-year (y-o-y) despite revenue rising by 20%.
The credit reporting agency also reported a weaker first-quarter sequentially. HLIB Research said core earnings fell 25% on the back of seasonality.
Nevertheless, the research house said the results for 1Q24 were in line with expectations. “Thus, we left the forecast unchanged.”
It is noteworthy that HLIB Research has downgraded its rating on CTOS to “neutral” but raised the probability-weighted target price (TP) of RM1.50 per share from RM1.45.
“Considering the recent share price recovery, we are turning less bullish on CTOS since the risk-reward profile has now become more balanced,” it said in a note.
UOB Kay Hian Malaysia Research also downgraded its call on CTOS to “hold”, following “recent positive share price action” but the TP was maintained at RM1.52 a share.
It said CTOS’ 1Q24 core net profit of RM21.3mil arrived below its expectations.
This was mainly reflecting the deferment of several key accounts’ projects, a lower contribution from associate JurisTech and the impact of the festive seasons.
“Nevertheless, management alluded that this earnings shortfall will be reversed in the subsequent quarters, and remains confident on delivering a 20% to 25% y-o-y net profit growth in 2024,” it added.
The research house pointed out that despite weaknesses in 1Q24, CTOS management guided that the deferred revenue recognition from the key accounts segment will be back-loaded to 2Q24.
Its commercial and direct-to-consumer segments will also recover from 1Q24’s seasonal weakness to deliver better average revenue per user and volume growth for the rest of 2024.
In a separate note, RHB Research has maintained its “buy” call on CTOS, highlighting that it has a recession–proof business model and multiple growth avenues in the digitalisation age, which deliver solid earnings and cash flow generation.
RHB Research said the higher adoption of digital solutions domestically for e-KYC (Know Your Customer) multi-face indentification, comprehensive portfolio reviews and analytics products, and on-boarding of new customers will drive growth for FY24.
