CTOS: Will it Double in Value on Listing?

 

The last time a company sold so much of its equity through an IPO was when FGV Holdings Bhd sold 60% of its shares in 2012. And now CTOS is offering 50% of its total equity for sale to investors. The typical size of listing is only 25% of a company’s equity. So, why this pursuit of a large public spread?

Sources say that it was large funds like the Employees Provident Fund (EPF) and Permodalan Nasional Bhd (PNB) who had nudged CTOS shareholders to consider an offering larger than 25% of equity. In the past several years, there has not been many large IPOs that could cater to the demand of large institutional funds like EPF and PNB. The reduced number of IPOs on the Main Market has also made it difficult for large institutions to find companies that are suitable for them to invest.

CTOS is expecting to raise about RM1.2 billion through 50% of its equity offered, driving the company’s post-IPO market capitalisation to RM2.4 billion.

Ganeshwaran Kana (8 May 2021), quoting sources, says CTOS may be valued at about 35 to 37 times, based on its price-to-earnings (PE) ratio. The other listed credit reporting companies around the world have a PE of around 50 times.

Big data and financial technology features make this company interesting and therefore likely to see a heavier demand. There are, so far, no exact comparable businesses among listed Malaysian companies that are like CTOS. But if you take technology stocks as examples, Greatech Technology Bhd and Pentamaster Corp Bhd have PE ratios of 61 times and 51 times, respectively.

In addition, the main shareholder of CTOS is Creador, the private equity firm who recently floated Mr DIY Group (M) Bhd on the Main Market. The market capitalisation of the group has doubled from RM10.98 billion on the first day of trading to over RM23 billion as of 12 May 2021.

The credit reporting industry has high barriers to entry and a key barrier is the access to credit profiles. CTOS has built this over three decades. The other CRAs in Malaysia are Experian, Credit Bureau Malaysia, FIS Data Reference, Dun & Bradstreet and CRIF Omesti. Malaysia’s credit reporting industry is still in its early stage. About a quarter of the Malaysian population don’t have credit scores. This may provide a great growth potential for the company. What do you think? Will CTOS double in value on listing, like Mr DIY?

Disclaimer: We are not recommending any counter or share nor accept any liability or loss for the stock mentioned above.

 

Reference:

1.     Joyce Goh, CTOS submits for IPO on Bursa Malaysia, eyes valuation of over RM2b — sources, 19 March 2021, The Edge

2.     Liz Lee, CTOS targets RM1.2 bil IPO in third quarter, sources say, 11 March 2021, The Edge