KUALA LUMPUR (May 8): Shares of CTOS Digital Bhd (KL:CTOS) rose to their highest in nearly two months as analysts flagged a pickup in earnings ahead, following the seasonally weaker first-quarter results.

CTOS rose as much as 4.3% or six sen to RM1.46, its highest since March 11, 2024. At 9.45am, the stock was trading at RM1.45, valuing the company at RM3.35 billion, after more than 7.8 million shares changed hands. The country’s benchmark index FBM KLCI was 0.2% higher.

First-quarter net profit accounted for only about 17% of consensus full-year forecast, but “we deem results to be within estimates since CTOS tends to begin the year slow due to seasonality”, said Hong Leong Investment Bank. There were also deferments of major projects, it noted.

The stock has rebounded 16% from the sharp selloff in March, eking out gains of a little under 3% year-to-date. CTOS had plunged as much as 27% on March 12 following a court ruling that credit reporting agencies are not empowered to formulate credit scores.

Analysts are still bullish, with a majority of seven out of 11 covering the stock having ‘buy’ calls while three have ‘hold’ ratings; Kenanga Investment Bank is the sole research house with a ‘sell’ recommendation. The consensus 12-month target price is RM1.68, indicating a potential return of 16%.

The company is appealing against the March court decision, with hearing scheduled for July 2024 while battling five other ongoing litigations.

In the meantime, “it appears to be business as usual” operationally, said Kenanga. “We remain cautious with CTOS’ ongoing predicament” even as the management appeared confident in its appeal, the research house said.

CTOS kicked off the year with a 25.6% year-on-year increase in net profit to RM20.82 million for the three months ended March 30, 2024, thanks to higher revenue and lower tax expense following the approval of a tax incentive for its main subsidiary.

For now, the consensus full-year forecast for this year remained unchanged at RM123.71 million.

On its part, CTOS said the company remained positive about its growth trajectory, driven by strategic expansions and robust operational performance across all business segments.

“The group’s growth potential extends beyond our current operations into new verticals and broader geographical footprints,” CTOS added.

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