CTOS eyes new overseas markets to drive growth

CTOS Digital Bhd is showing no signs of slowing down since its listing on the Main Market of Bursa Malaysia in July 2021.

The credit reporting agency (CRA) is on expansionary mode as it continues to eye new verticals and overseas markets to fuel growth.

CTOS posted a stellar performance for the financial year ended Dec 31, 2023 (FY23), in which it registered record-breaking earnings with the fourth-quarter (4Q) profit jumping four-fold.

Between 2021 and 2023, CTOS has doubled both its revenue and net profit.

Looking ahead, the company anticipates tripling these figures by the close of 2025. In the longer term, the group is eyeing to become the leading CRA within Asean in the next five to 10 years.

Speaking with Starbizweek, CTOS group chief executive officer Erick Hamburger acknowledges that the company’s aspirations in the longer term may seem lofty.

However, he believes that it is an attainable goal, given the group’s outstanding product and service portfolio, which has demonstrated a proven track record in Malaysia.

“We will capitalise on our acquisitions in the Philippines and Indonesia to sell our offerings in these markets. We will also work on expanding our customer base and leverage on existing partnerships in the country to further penetrate those markets.

“Moreover, CTOS will continue to look for acquisition targets to expand our geographical footprint and portfolio of solutions,” he says.

For FY23, CTOS registered a 65% increase year-on-year (y-o-y) in its net profit to Rm118.37mil, while revenue jumped 34% to Rm261.44mil.

Notably, for 4Q23, CTOS’ net profit surged by 302% y-o-y to Rm56.28mil, translating to an earnings per share of 2.40 sen. On the other hand, the group’s 4Q23 revenue surged by 39% y-o-y to Rm73.15mil.

The company expects to hit its revenue target of Rm340mil to Rm360mil by FY24 and Rm415mil to Rm435mil in FY25.

Primarily engaged in credit reporting, digital software-related services including software development, outsourcing and provision of training service, CTOS has evolved from being just a data company to a comprehensive end-to-end digital credit lifecycle solutions provider, incorporating analytics and digital platforms.

“We have expanded from solely data into analytics, fraud and identity, and customer management. Whether for banks, fintechs, or small and medium enterprises (SMES), our focus is on leveraging data and analytics to facilitate informed decision-making throughout the customer journey,” Hamburger says.

He added although the company possesses a substantial market share of 73% in the local CRA industry, it is still considered to be relatively small, looking at the untapped opportunities within the current space.

“While our market position in the industry is strong, it is important to note that the overall size of the industry remains relatively small compared to the potential it has.

“If you look at the number of products that financial institutions buy from credit reporting agencies like ours, it is still way below other more evolved markets like the United States or the United Kingdom,” Hamburger says.

Following the acquisition of an 80% stake in PT Prime Analytics Indonesia and a 100% stake in the Philippines-based financial technology startup, Finscore, last year, Hamburger states that CTOS expects international operations to contribute 12% of its revenue.

CTOS also has a market presence in Thailand when it acquired a 24.83% equity interest in Business Online Public Company Ltd in 2020.

“The underbanked population in Malaysia is 28% of the total population, However, in Indonesia and the Philippines, it is 81% and 75% of the population, respectively.

“Moreover, Thailand’s underbanked population is between 46% and 48%.

“Hence, alternative credit scoring and the underbanked population in these markets are definitely a big focus for us,” he says.

Hamburger adds the company will continue to be on the lookout for other merger and acquisition opportunities both locally and overseas, hoping to be able to close something this year.

“Our net gearing ratio is quite low, at 0.22 times, compared to other companies like Experian or Equifax which are between 1% and 1.3%,” he says.

However, Hamburger says that growth will primarily stem from core business segments, namely, key accounts, commercial and direct-to-consumer, which collectively accounted for 98% of FY23 revenue contribution, with the remaining 2% derived from its international division.

The company’s local operations segment profit for FY23 increased by 34% y-o-y to Rm73.4mil underpinned by strong revenue growth.

Revenue from the group’s local operations expanded by 31% y-o-y to Rm255.5mil with higher contributions from all customer groups.

“Firstly, we want to expand our product offerings to new customers.

“If you look at the current penetration of our services, we closed FY23 at 3.6 million registered subscribers in our direct-to-consumer business, but there are 16 million Malaysians who are financially active.

“In the commercial segment; in the SME space, we have 21,000 customers, but there are more than a million SMES in the country.

“Secondly, we aim to increase the adoption of our offerings among existing customers.

“For instance, while banks may purchase credit history and scores, they might not invest in identity validation services like Electronic Know Your Customer or our multi-face ID solution.

“Selling these additional services provides added value and represents incremental sales within the same customer base,” Hamburger says.

In FY23, key accounts and direct-to-consumer experienced substantial growth at 51% y-o-y and 46.4% y-o-y respectively, due to increased demand for CTOS Data Systems Reports, digital solutions and comprehensive portfolio review and analytics services.

Hamburger says CTOS is also expanding further into new verticals like the automotive, real estate and insurance sectors.

“When you look at the maturity of the services and the journey that we have with financial institutions like banks and companies that engage in credit, they have been using the credit-related solutions that we offer for a longer period of time.

“However, in insurance, real estate and automotive verticals, it is newer, and the number of products and the sophistication of those products that they are using is still in an evolving stage.

“Hence, this is a focus for us and it will also drive our revenue,” he says.