CTOS faces weaker Q4 earnings on cyber disruption, higher taxes

KUALA LUMPUR: CTOS Digital Bhd is expected to report weaker fourth-quarter earnings as cybersecurity-related service disruptions and higher tax expenses weigh on profitability, according to CIMB Securities Sdn Bhd.

Analyst Mohd Shanaz Noor Azam said the temporary suspension of selected credit reporting services following the incident in late September could affect about 35 per cent of the company's revenue.

The disruption is expected to result in revenue losses and additional remediation costs, while transaction volumes could take 30 to 60 days to fully recover once services resume.

Shanaz said the expiry of CTOS's tax incentive on Nov 8 would add to earnings pressure, with taxable income becoming subject to the statutory corporate tax rate of 24 per cent.

This compares with the company's 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.

CIMB Securities maintained its "Hold" call on CTOS with a target price of 55 sen, pending the company's analyst briefing today.

The briefing is expected to provide greater clarity on the restoration of affected services and the recovery in transaction volumes.

Shanaz noted that CTOS had initially targeted resuming services in the third week of October, with each additional week of disruption potentially reducing profit after tax and minority interests by RM1.3 million.

He cautioned that prolonged disruptions could lead to customer losses, higher cybersecurity costs and further earnings pressure.

CIMB Securities said the successful restoration of affected services and a recovery in transaction volumes would be key catalysts for a potential re-rating of CTOS shares.

Other potential catalysts include stronger adoption of digital and alternative credit scoring solutions, cross-selling opportunities in Southeast Asia and possible special dividends from non-core asset disposals.

However, downside risks remain, including prolonged disruptions to Central Credit Reference Information System-related services, customers switching to competing credit bureaus and higher cybersecurity and compliance costs.

Other risks include slower sales conversion in the financial institution and corporate segment, further data breaches and adverse regulatory developments.