The upcoming initial public offering (IPO) of credit rating agency (CRA), CTOS Digital Berhad (CTOS), has caught the interest of several institutional funds, including insurance outfit Etiqa International Holdings Sdn Bhd, which is a wholly-owned unit of Malayan Banking Bhd, Kenanga Investment Bank Bhd and Aberdeen Standard Investments. 

If you are looking at CTOS’ IPO with interest, here are 8 things to know before you invest.  

1. Business overview

CTOS is principally involved in the business of credit reporting, digital software-relatedservices, software development, outsourcing and training services. 

The group provides credit information and analytics digital solutions on companies, businesses and consumer for use by banks and businesses at each stage of the customer lifecycle and provide credit information and analysis to consumers. 

CTOS serve three types of customers: Key Accounts, Commercial and Direct-to-Consumer. 

It provides digital solutions to approximately 430 Key Accounts customers in Malaysia, including Malaysian banks and corporates, and approximately 17,000 Commercial customers primarily in Malaysia, including Small Medium Enterprises (SMEs) in industries such as financial services, telecommunications, wholesale and retail, trade, manufacturing, construction, professional services and insurance. 

Lastly, the Direct-To-Consumers are Malaysian consumers. CTOS provides registered Malaysians with credit scores and detailed information including Central Credit Reference Information System (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. Currently, it has approximately 1.3 million users registered for a CTOS ID account, which allows users to access and purchase their CTOS Consumer Scores and credit information. 

2.  Data sources and information databases 

CTOS’ digital solutions are based on its extensive databases of consumer and business information. Its databases contain data collected from over 30 years and contained profiles of approximately 15 million consumers and approximately 8 million companies and businesses. 

CTOS’ proprietary information databases include CTOS Data System’s eTR and eTR Plus databases containing non-bank positive and negative payment information of consumers and businesses and CTOS Enhance Database (CED) for litigation records, each of which isdeveloped and maintained in-house. 

3.  Regional market leader in credit reporting 

CTOS is a regional market leader in the ASEAN region, with a presence in Malaysia and Thailand. 

It is Malaysia’s leading credit rating agency (CRA), with an estimated market share in terms of revenue of 71.2% in 2020, according to an independent market research (IMR) report prepared by IDC Research.

Meanwhile, its associate, Experian Information Services (Malaysia) Sdn Bhd (Experian), is the second-largest CRA in Malaysia, with an estimated market share in terms of revenue of 17.5% in 2020, according to the IMR report. 

Another associate, Business Online Public Company Limited (BOL) is the largest company information bureau in Thailand, with an estimated market share in terms of revenue of 59.0% in 2020, according to the IMR report. This overseas interest serves to further strengthen CTOS’ market knowledge and development across the region. 

4. Penetration of credit reporting in ASEAN markets are a fraction of developed market peers 

The penetration of credit reporting and credit management solutions, measured by respective countries’ credit bureau coverage of the population, remains significantly lower in Malaysia and in regional countries such as Thailand, where CTOS has a presence when compared to developed market peers in the U.S. and the U.K. 

The market size of the ASEAN region for credit reporting is at RM990.5 million (USD238.9 million) in 2020, according to IDC Research. Growth for ASEAN from 2021 to 2025 is expected to be at 10.8% annually, much higher than in developed countries such as the U.S. and the U.K. 

Growth potential in the ASEAN region comes from greater penetration and usage of credit reporting services and further expansion of other services such as offering analytics (such as industry analysis and benchmarking, and share of wallet analysis), e-Know Your Customer (eKYC), application automation and direct-to-consumer services, building from its current base which has fewer products and services available to customers when compared to developed countries. 

(Source: IPO prospectus)

5. Major customers 

CTOS’ revenue streams are highly diversified with its largest customer providing less than 4.5% of revenue for the financial year ended (FYE) 31 December 2020. Its top 5 customers accounted for RM19.9 million, or 14.2% of group revenue for FYE 31 December 2020 as follows:

(Source: IPO prospectus)

It is interesting to note that Customers A, B, C and D are in the banking business. Meanwhile, Customer E is involved in the sales and lease of household appliances in Malaysia. 

6. Plans to expand into new verticals 

CTOS plans to expand into new sectors where it sees strong growth potential. These sectors include automotive, real estate and insurance. According to the IMR Report by IDC Research, the forecast compounded annual growth rate (CAGR) of the total addressable market of Malaysia’s credit reporting industry from 2021 to 2025 by sector, is as follows: 

(Source: IPO prospectus)

Collectively, the total addressable market of the automotive, real estate and insurance sectors is forecast to grow from RM25.1 million in 2021 to RM128.9 million by 2025, implying a 50.6% CAGR during this period, according to the IMR Report. Given its current market leadership in Malaysia, CTOS is best placed to benefit from this growth. 

CTOS intends to continue to expand its digital solutions with new verticals. For example, to leverage the growth of the real estate sector, it has launched the CTOS Tenant Screening Report, allowing landlords or agents to screen prospective tenants in a hassle-free manner, through a series of ID verification, KYC screening, financial checks, income estimation and historical legal cases or bankruptcies. Currently, CTOS has several digital solutions that are in the pipeline related to motor vehicle checks and collections, which it aims to launch in the next 2 years based on current development timelines. 

7. IPO pricing yet to be determined  

According to CTOS’ draft IPO prospectus, the listing exercise will involve an offer of up to 1.1 billion shares at a price to be revealed later.

Of the 1.1 billion shares, 900 million will come from existing shareholders, while the remaining 200 million will be made available via the issuance of new shares.

Of the 900 million shares up for sale from existing shareholders, Creador’s unit, Inodes Limited will offer 720 million shares, while 81 million shares will come from each of the co-founders Chung Tze Keong and Chung Tze Wen, and 18 million shares from Ng Gaik Lin @ June Ng.    


(Source: IPO prospectus)

This means about 65.5% of the IPO proceeds will go into promoter Inodes’ pocket. Inodes are82.6% owned by Creador. The remaining shares are held by Siguler Guff BRIC and Siguler Guff FM – managed by Siguler Guff Advisers LLC – and MIT Investments. 

Note that Creador is a private equity firm that has been a major shareholder of CTOS since 2014. Creador also backed Mr DIY Group (KLSE: MYRDIY) which undertook Malaysia’s largest IPO since 2017, with a market capitalisation of RM10 billion, and raised about RM1.5 billion from both institutional and retail investors. Eyes are now on CTOS to also have a successful listing. 

8. Financial highlights 

CTOS had a revenue CAGR of 12.8% between 2018 to 2020 and registered a top line of RM140.5 million in FYE 2020. 

Gross margins are high above 80.0%, while net profit margins are consistently above 25.0%, over the same period.  

A look at CTOS’ numbers shows its borrowings jumped more than 4 times in the FYE 2020 before this listing. Its total borrowings rose 378.9% to RM132.3 million in FYE 2020 from RM27.6 million a year earlier. Its gearing ratio increased from 0.3 times as of 31 December 2019 to 1.1 times as ofbehaviourgovernment

CTOS had borrowed to fund the group’s acquisitions. In the last 3 financial years, significant acquisitions included a 26% equity interest in Experian (that is majority-owned by UK’s Experian plc (LON: EXPN)); and a 20% equity interest in BOL in October 2020. Apart from these acquisitions, CTOS also acquired the entire equity interest in Basis Corporation Sdn Bhd (Basis), a Malaysian credit rating agency, in January 2021. 

According to the draft IPO prospectus, proceeds from the IPO will be used to repay CTOS’ borrowings and also for future acquisitions. The group also aims to use a portion of the proceeds to land some new acquisitions for growth within 3 years.

(Source: IPO prospectus)

In summary

CTOS operates in a highly regulated environment, subject to regulatory oversight by the CRA Registrar, which is under the purview of the Ministry of Finance in Malaysia. Regulation creates a high barrier to entry since there are high incremental costs related to compliance including technology and IT costs, staff and associated costs for teams associated with business compliance, risks and legal, as well as costs related to third-party audits. 

For a CRA to report on consumer and business credit behavior, it is necessary to have access to a large database of credit, demographic and other consumer and business information. It is also challenging to obtain access and approval from the necessary governmental agencies and other data sources. CTOS’ databases contain data collected from over 30 years, giving it a commanding edge over its competitors. 

CTOS’ listing is almost certain to be a highlight of the Malaysian stock market this year. But before getting too excited, investors should consider the IPO pricing and valuation carefully before subscribing to shares.  

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