The listing exercise raised $0.28 billion, of which $52.16 million was by issue of new shares at $0.26 per share
CTOS Digital Bhd listed on the Main Market of Bursa Malaysia this morning, surging to RM1.76 ($0.42), 60% higher than its initial public offering price (IPO) of RM1.10 ($0.26).
The stock opened 40 sen above its IPO price at RM1.50 ($0.36).
The stock jumped 50% or 55 sen to RM1.65 ($0.39) at one time, with a trading volume of 124.86 million, making it the most active stock traded on Bursa.
The share price exceeded Kenanga Research’s target price of RM1.40 ($0.33), which is pegged at 45 times earnings for the financial year ending Dec 31, 2022 (FY22), and UOB Kay Hian Research’s target price of RM1.32 ($0.31) based on 40 times FY22 price-earnings ratio.
This is the largest IPO on Bursa Malaysia so far this year. The listing exercise raised RM1.2 billion ($0.28 billion), of which RM220 million ($52.16 million) was by issue of new shares at RM1.10 ($0.26) per share.
The CTOS Digital group provides digital solutions across three core customer segments — the key account segment, the commercial segment, small and medium businesses, as well as more than 1.3 million individual customers.
Kenanga Research, which initiated its coverage of the stock today with an “outperform” call and its target price of RM1.40 ($0.33), opined that CTOS stands to benefit from a growing customer base and expansion of product offerings in the underpenetrated market in Malaysia.
Cross-selling opportunities are also at hand as the group usually launches one to two new products annually, Kenanga analyst Adrian Kok said in a note to investors today.
According to Kok, the stock deserves a greater premium over its issue price of RM1.10 ($0.26), which represents a valuation of FY22 price-earnings of 35.5 times versus 31 times for its regional peers.
Kok said CTOS’ fair value (FV) of RM1.40 ($0.33) is pegged at 45 times FY22 price-earnings, justified by its market leader status with a 71.2% share of the underpenetrated market, and more robust industry growth by having a superior compound annual growth rate (CAGR) of 13.2% as compared to the US (7.5%) and the UK (5.3%).
CTOS benefits from two sides of the coin. It enjoys growth in market size during economic growth while benefits in an economic slowdown from greater frequency of credit checks (more prudent risk management) and stronger demand for its management and monitoring solutions.
CTOS aims to expand into new sectors with tremendous growth potential, such as automotive, insurance and real estate. The total addressable market for the trio is forecast to grow from RM25.1 million ($5.95 million) in 2021 to RM128.9 million in 2025, representing a CAGR of 50.6%. CTOS recently launched its new digital solution — CTOS Tenant Screening Report — which will enable it to tap into the real estate sector, he added.
UOB Kay Hian Research, meanwhile, expects steady growth for CTOS and minimal earnings impact from the Covid-19 pandemic.
To recap, CTOS posted a 64% jump in normalised net profit to RM15 million ($3.56 million) for Q2 ended June 30, 2021 (2QFY21) from RM9.1 million ($2.16 million) for the previous year’s corresponding quarter. Its reported net profit stood at RM11.8 million ($2.80 million) for the quarter, a year-on-year rise of 56% from RM7.5 million ($1.78 million), while its revenue grew 23% to RM37.8 million ($8.96 million).
While a big chunk of CTOS’ business is habitually recurring income and the group’s countercyclical business model is defensive in nature, CTOS is able to deliver resilient earnings during times of crisis, such as prolonged Covid-19 lockdowns, according to UOB analyst Jack Goh.
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