Reading Time: 12 minutes 

DISCLAIMER: This research report is not a recommendation to buy, sell or hold the stock. None of the opinions in this article represent FLY: Malaysia. This is simply a dive into analysing what made this stock appealing to investors by considering its properties as a business. Any subsequent investment decisions are ones you are solely responsible for.

CTOS Digital Bhd (formerly known as CTOS Holdings Bhd) debuted on the Main Market of Bursa Malaysia on 19 July 2021 with their ticker symbol, “CTOS Digital Berhad (5301)”. 

Opening at RM1.50, CTOS surged to an all-time high of RM1.76, a 60% premium over its initial public offering price (IPO) of RM1.10. The stock ended at RM1.62, which is 47% over the issue price from its initial trading day. They have also reached a trading volume of 366.36 million shares, which makes it the most active stock on Bursa (The Edge, 2021). 

Indeed, their share price has exceeded the expectations of all analysts including Kenanga Research and UOB Kay Hian Research, where they peg a target price of RM1.40 and RM1.32 respectively. 

Before we dive deeper into the factors that trigger the high demand and stock price of CTOS, let’s have a quick understanding of the company and their business model. 

CTOS Digital Berhad can be considered as the top credit reporting agency in Malaysia. Here’s a comprehensive list of their core customer segments and how they are serving them:- 

Core customer segments How they serve their customers

Key Accounts

Example: Malaysian banks

They provide banks with credit scoring based on applicants’ or debtors’ existing borrowings and repayment history. The analysis provided will help the banks in determining whether the applicants’ risk level is within the acceptable range or not and to what extent. It serves the purpose of filtering the clients’ profiles before banks provide them with loans. 

More than 30% of the company’s revenue is from Key accounts (few transactions but each with a significant amount)

Commercial Customers

Example: Malaysia SMEs industries:-

–       Financial service

–       Telecommunications

–       Wholesale

–       Retail trade

–       Manufacturing, construction

–       Professional services and insurance

The CTOS SME Score quickly and accurately assesses risk, making it possible for credit grantors to expand their small business loan portfolio. It can help make the loan process faster, fairer, more accurate and more consistent, helping more small businesses access the capital they need easily.

Moreover, the SME score can also help businesses to assess and control their risk with confidence through comprehensive credit management solutions as mentioned in the package below.

In fact, more than 50% of the company’s revenue comes from commercial customers. It’s the company’s main source of revenue.

Direct-to-Consumer customers

*Malaysian consumers


With the integration of the CTOS App, they are able to provide their customers with credit scores and detailed information including CCRIS information, directorships and business interests, litigation cases, and trade references, which helps consumers understand and manage their credit health and improve their financial literacy.

The credit score collected on the app can also aid in better access credit for the consumers (to keep track and maintain a healthy score).

Less than 5% of company revenue comes from individual Malaysian consumers


The Highlights of this Company

Now, perhaps it’s worth looking at some highlights of what made the company so enticing to investors. Here are 4 possible reasons as to why it became so lucrative, and investors were willing to purchase it at a premium. 

  1. Strong economic moat
  2. High barriers to entry
  3. Great financial support from cornerstone investors
  4. Company’s strengths make it well-positioned for future market opportunities

1. Strong Economic Moat 

A strong economic moat refers to “a business’ ability to maintain competitive advantages over its competitors to protect its long term profits and market share” (Gallant, 2021)

UOB Kay Hian research has pointed out, that CTOS databases and credit history serves “as an economic moat”, deterring new entrants (CTOS Digital on track for better growth, 2021). This economic moat is: 

  • Legitimacy

The nature of CTOS Digital Berhad’s business is that they monetise through their credit analysis reports, recommendations to the banks, SMEs and individual customers.

  • High customer retention rate that leads to recurring revenue

According to their IPO Prospects, CTOS Digital Berhad has long-standing relationships with a number of customers, including banking, telecommunications, and other corporate customers who use their services. In fact, their top five major customers have established a lasting relationship with CTOS, ranging from 8 to 20 years. Long-term customers provide a stable and reliable stream of revenue and business. 

2. High barriers to entry 

Barriers to entry refer to factors that prevent or make it tougher for new firms to enter that specific sector. An example of this could be how it would be an impossible task for a new firm to become an electricity provider, as Tenaga is not only a monopoly but the regulation involved and the high start-up costs likely to be incurred.

In the case of CTOS, there are significant barriers to entry that would likely result in it’s continued prosperity.

Barriers Explanation
The requirement of strict regulation & high security Credit reporting agencies including CTOS are bound by lots of acts and regulations. The most relevant example would be the Credit Reporting Agencies Act 2010. Therefore, an industry that is highly regulated due to financial services-related issues will make it difficult for other firms to enter. 

Moreover, such agencies are required to perform their due diligence in securing customer confidential information. The risk of facing technical or IT errors will definitely lead to long-term adverse impacts to the company, hence deterring entrants from a risky venture.

Databases CTOS has 30 years of experience and has therefore accumulated a large credit database on individuals and businesses in Malaysia with extensive access to key financial databases. Specifically, the company mentioned that they have approximately 15 million consumer profiles, and 8 million company and business profiles from a wide range of public sources. Compared to new entrants, it’s way challenging for them to compete with companies such as CTOS who have large databases
Brand recognition As mentioned, CTOS has been well-established in the credit reporting industry for over 30 years. Customers are likely to go for them whenever they need credit services as such activities involve a lot of personal information from customers. Therefore, customers would prefer to reach out to CTOS instead of new credit reporting agencies to minimize their risk.
Services Currently, CTOS offers more services than it’s other competitors. It may be extremely costly for other services to set the various services up, that meet regulatory standards.


3. CTOS Digital Berhad has financial support from 32 cornerstone investors

Cornerstone investors are generally referred to a class of investors who have invested a fixed amount of money in advance, before the launch of IPO and it’s debut in the stock markets. 

CTOS Digital Berhad has various reputable cornerstone investors which include Employment Provident Fund Board (EPF), Permodalan Nasional Berhad (PNB) and AIA Bhd.

  1. Employees Provident Fund Board
  2. Permodalan Nasional Berhad
  3. Aberdeen Standard Investments (Asia) Limited
  4. Aberdeen Standard Investments (Malaysia) Sdn Bhd
  5. Aberdeen Standard Islamic Investments (Malaysia) Sdn Bhd
  6. JP Morgan Asset Management (Singapore) Limited
  7. FIL Investment Management (Hong Kong) Limited
  8. Eastspring Investments Berhad
  9. Affin Hwang Asset Management Berhad
  1. AIA Bhd
  2. AIA Pension and Asset Management Sdn Bhd
  3. First Sentier Investors (Hong Kong) Limited as an investment manager of FSSA Singapore and Malaysia Growth Fund
  4. First Sentier Investors (Hong Kong) Limited as an investment manager of Scottish Oriental Smaller Companies Fund
  5. Hong Leong Asset Management Bhd
  6. Hong Leong Assurance Berhad
  7. Kenanga Investors Berhad
  8. Matthews International Capital Management, LLC
  9. Principal Asset Management Berhad
  1. RWC Asset Management LLP
  2. SeaTown Master Fund
  3. Mawer Investment Management Ltd.
  4. Urusharta Jamaah Sdn Bhd
  5. New Silk Road Investment Pte Ltd
  6. RHB Asset Management Sdn Bhd
  7. AmFunds Management Berhad
  8. KAF Investment Funds Berhad; and
  9. Maybank Asset Management Sdn Bhd


4. Company’s strengths make it well-positioned for future market opportunities

Company’s Strengths Market Opportunities
CTOS Digital Berhad has a fully developed digital platform for end-to-end credit management. From new customer identification to customer onboarding, to decisions to customer management, and monitoring to recovery. 

With the lockdown conditions in Malaysia, customers don’t need to go to regular branches and can use their digitalized services when applying for loans. 
  • CTOS Digital Berhad has the highest market share in Malaysia in the credit reporting industry. 

  • Strong presence in regional countries such as Thailand compared to their peer companies in the U.S. & United Kingdom. The strong presence results from their 20% shares in BOL associates – the largest company information bureau in Thailand.
Credit reporting and management solutions measured by IMR report in countries such as Malaysia, Thailand and other ASEAN countries remain significantly lower. 

In other words, it represents the growing total addressable market in the ASEAN market.


Financial Ratio & Analysis of CTOS Digital Berhad 

Income Statement

Based on the income statement, CTOS Digital Berhad has shown an increasing trend in revenue over the past 3 years. It might indicate their future potential growth given their strong presence in the ASEAN market. In fact, they have even shown a good revenue performance during the year 2020, where the economy was at its all-time worst due to the Covid pandemic.

However, net margin (%) decreased from 30.21 to 27.03 during the year 2020. Based on the IPO prospects, it is due to the increasing “other normal expenses” (e.g., marketing, administrative) – possibly caused by their IPO planning. 

Cash Flow Statement

Based on the cash flow statement, there has been a decreasing trend in the dividend pay-out ratio over the past 3 years. In their prospectus, CTOS also mentioned that they may not be able to pay out dividends or pay at levels lower than that anticipated by investors at any time for any reason.

Putting the effect of dividends aside, overall investors likely liked the healthy and increasing operating cash flow in the company which suggests that the company can manage their liquid assets well. It suggests that there is good internal management of the company. There is also a major increase in the Capital Expenditure (CAPEX) to perform acquisition/investment in associates as well as purchasing property, plant, and equipment, indicating that it will continue to grow.

Other Important Financial ratios to take into consideration 

During the year 2019 & 2020, there was a major increase in CTOS short & long-term debt, mainly due to the acquisition as mentioned above. Also, the company’s cash in hand would not be able to cover their short-term debt either. That’s the reason for the low current ratio and high gearing ratio. However, CTOS mentioned that they will use the partial amount of money collected from the IPO for repayment of borrowings. 

The trade receivable days of CTOS Digital Berhad are longer than the trade payable days as shown in the table above. It indicates that the company needs to pay their suppliers before receiving their money from their customers. It will potentially lead to cash flow problems in the future even if the operating cash flow is considered healthy as of now. It is crucial for companies to manage their inflow and outflow of cash as it provides a buffer against expected or unexpected future financial challenges where urgent cash is needed. 

Moreover, there is a decreasing trend in the company’s ROIC from 37.8% to 15.12%.  In 2019 and 2020, CTOS invested their money in acquiring potential associates to expand their business, therefore, the decreasing pattern will not last long and those gains/benefits from the investment can be seen in the near future.

Lastly, there is also a significantly high P/E ratio and after the surge in their stock price during their debut in Bursa Malaysia, the ratio is even higher. A high PE ratio indicates investors expect the company to grow in the future, hence why they’re willing to pay a “premium”

Business Risks

While in this research report, we’ve considered why investors would be attracted to CTOS Digital Berhad, it’s worth looking at the flipside and considering why some investors would have stayed away from the IPO and it’s subsequent boom after the debut.

Risk factors On the other side:
The business is subject to various governmental regulations (Malaysia & other countries). It is complex and may change in a timely period. Failure to comply would result in penalties or other liabilities.

Example: CRA Act in Malaysia

Regulators give companies warnings well in advance, and penalties are a last resort when applied to the companies, so there is sufficient time to alter business operations to comply with them.

Nonetheless, the results from compliance with those regulations might be adverse.

The company’s failure to maintain integrity of the database will cause its brand & reputation to be adversely affected. The possibility should always be considered, but with over 30 years as an experienced credit reporter, the likelihood is less.
CTOS Digital Berhad will be subject to increased scrutiny by the government due to their greater market domination in Malaysia & Thailand. This is a significant risk, note The Competition Act in Malaysia which prohibits the abuse of dominant positions in any market for goods and services that impose unfair trading.

Anti-competitive conduct in Thailand prohibits action that will reduce competition in the market. If the company becomes too powerful and stifles it’s competitors there may be increased scrutiny.

The nature of CTOS’ business may lead to cybersecurity incidents happening often. The incident will not only cause them to potentially lose access to external data sources, it will also harm their brand reputation and affect their primary activities of providing credit information to their customers negatively. This is a fair assessment, as any advancement of technology in the near future will definitely lead to cyberattacks becoming more prominent.

If the top leadership is forward-thinking, they could employ high data encryption and leveraging advanced technologies like blockchain.

Overall, consumers likely were enticed by CTOS due its great economic moat and strong financial support from “institutional investors”. It also has a strong balance sheet, with signs pointing to the company being able to achieve sustainable growth. While there are significant risks with the business, it seems that in the market, the bulls are in control because as of 20th September, the stock has risen by 21.57% since its debut.

Again, this research report should not be misconstrued as a “buy”, “sell” or “hold” recommendation. This solely serves as a template analysing a company and its future prospects. When investing, always conduct your due diligence.


Tan, R. (2021). Malaysia’s IPO mania. [online] The Star. Available at: <> [Accessed 26 August 2021].

Bursa Malaysia. (2021). IPO Prospectus. [online] Available at: <> [Accessed 26 August 2021].

The Star. 2021. CTOS Digital on track for better growth. [online] Available at: <> [Accessed 21 September 2021].

Researcher(s): Lim Yan Ting

Reviewer(s): Muhammad Bahari, Faith Tan

Editor(s): Johanna Lok 

Download Article: [download id=”5992″]

[yikes-mailchimp form=”1″ title=”1″ description=”1″]


Leave a Reply

Your email address will not be published. Required fields are marked *

Interested in achieving financial literacy?

Subscribe to us now!

Interested in achieving financial literacy?