CTOS: Earnings Outperform Expectations Driven by Strategic Cost Management

A recent investment bank research report indicates that the company’s core Profit After Tax And Minority Interest (PATAMI) for the financial year ended December 2025 (FY25) closed within expectations, reaching MYR89 million. While this figure represents a 17.2% year-on-year decline, analysts highlighted robust revenue growth of 7% year-on-year, primarily supported by strategic cost efficiencies.

Performance Review

Despite solid revenue expansion, earnings were notably impacted by margin compression, with the Gross Profit Margin (GPM) contracting to 68% in FY25 from 72% in FY24. This was largely attributed to a higher contribution from lower-margin international business segments and elevated operational costs stemming from prior product investments and an expansion in headcount. However, strong associate contributions, which surged by 18.5% year-on-year, partially mitigated the overall margin pressure.

The fourth quarter of FY25 saw an encouraging improvement in topline momentum across various segments. Key accounts rebounded by 13.0% year-on-year, driven by resilient recurring revenue and a stronger uptake of alternative scoring and analytics solutions. The international business demonstrated robust growth of 37.2% quarter-on-quarter and 41.4% year-on-year, securing eight new clients and implementing projects in the Philippines. Commercial revenue also rebounded, while the Direct-to-Consumer (D2C) segment maintained strong growth, supported by an expanding user base and rising subscription services. Despite a 15.3% year-on-year fall in core PATAMI due to higher administrative costs, earnings rebounded by 8.3% quarter-on-quarter, largely due to improved associate contributions.

Future Outlook and Strategy

Analysts are optimistic about the company’s prospects for FY26, anticipating a return to a growth trajectory. This will be underpinned by several key initiatives, including new product rollouts across commercial and key account segments, with a focus on solutions for fraud detection, income verification, and credit validation. Continued customer acquisition efforts are also expected to contribute positively. Furthermore, the company is set to implement cost optimisation initiatives, automation, and productivity gains from AI adoption to support margin recovery. While the disposal of Experian may have an impact on associate contributions, overall earnings are projected to improve from other associates.

Investment Recommendation and Risks

An investment bank maintains a “BUY” recommendation for the company, with a target price of MYR1.11, indicating a potential upside of 27%. This valuation is based on a Discounted Cash Flow (DCF) methodology, which incorporates a 4% ESG discount.

However, potential downside risks include unfavourable changes in the regulatory environment, slower-than-expected product adoption, ongoing litigation, and data security breaches.