CTOS shares jump 14pct on stronger Q3 earnings

KUALA LUMPUR: CTOS Digital Bhd shares rose in early trade after the company reported higher third-quarter earnings, although analysts warned of near-term pressure from service disruptions and higher taxes.

The stock climbed as much as 14.1 per cent, or 5.5 sen, to 44.5 sen before easing to 43 sen.

It was the fourth most actively traded counter, with more than 23.9 million shares changing hands.

CTOS opened two sen, or 5.13 per cent, higher at 41 sen, compared with Wednesday's closing price of 39 sen.

The credit reporting agency's net profit rose 11.5 per cent to RM27.54 million in the third quarter ended Sept 30, 2026, from RM24.69 million a year earlier, supported by higher revenue.

Revenue increased 5.5 per cent to RM87.56 million from RM83.01 million in the corresponding quarter last year.

For the first nine months of 2026, net profit grew 14 per cent to RM68.71 million from RM60.29 million, while revenue rose 7.5 per cent to RM256.02 million from RM238.08 million.

The growth was driven by stronger contributions from its Malaysian and international operations.

CTOS declared a third interim dividend of 0.70 sen per share for the financial year ending Dec 31, 2026, payable on Jan 27, 2027.

This brought its year-to-date dividend to 3.04 sen per share.

RHB Research analyst Lee Meng Horng maintained his "Buy" call on CTOS with an unchanged target price of RM1.06, saying the recent share price sell-off was unwarranted given the company's underlying business strength.

He said CTOS' nine-month core earnings of RM69.9 million, up 13 per cent year-on-year, were within expectations, supported by stronger contributions from international operations.

"Investors should look past this isolated event and focus on the underlying strength in its core solutions as well as leadership position," he said, citing the company's recurring income, return on equity and growth prospects.

However, Lee expects fourth-quarter earnings to weaken due to the temporary suspension of access to the Central Credit Reference Information System following a cybersecurity incident, as well as the expiry of CTOS' pioneer status tax incentive on Nov 8.

He said the company could recover swiftly once services resume, given its established market position and the importance of credit reporting services to its key customers.

New growth strategies involving digital partnerships, artificial intelligence and alternative data solutions could also support earnings growth into 2027.

Meanwhile, CIMB Securities Sdn Bhd analyst Mohd Shanaz Noor Azam maintained his "Hold" recommendation on CTOS with a target price of 55 sen, pending greater clarity on the restoration of affected services and recovery in transaction volumes.

He said the cybersecurity incident was expected to weigh on fourth-quarter earnings, with the disruption affecting about 35 per cent of the company's revenue.

Transaction volumes could take 30 to 60 days to recover fully after services resume, while additional remediation costs could further pressure profitability.

The expiry of CTOS' tax incentive would also increase its tax burden, with taxable income subject to the statutory corporate tax rate of 24 per cent, compared with its effective tax rate of 8.4 per cent in the first nine months of 2026.

"We expect these factors to weigh on fourth-quarter profitability, with the full impact of the higher tax rate becoming more pronounced in financial year 2027 (FY27)," he said in a note.

Shanaz said each additional week of service disruption could reduce profit after tax and minority interests by RM1.3 million, based on the company's earlier estimates.

He added that a prolonged suspension could expose CTOS to customer attrition and higher cybersecurity costs.

However, successful service restoration, stronger adoption of digital credit scoring solutions and regional expansion could support a recovery.