KUALA LUMPUR: CTOS Digital Bhd's total earnings for the first half of 2024 (1H24) fell below expectations set by Hong Leong Investment Bank Bhd (HLIB Research) and the consensus.
For the second quarter ended June 30, 2024 (Q2 2024), CTOS reported earnings of RM26 million, pushing its sum of earnings in 1H24 to RM47 million.
HLIB Research said this formed only 38 per cent and 39 per cent of the firm's and consensus' full-year forecasts.
It noted that the company's revenue growth in the key accounts segment should gain momentum due to the increased recurring consumption from new customers and the ramp-up in digital solutions.
For the commercial segment, it should rebuild tempo following the partnership with Telekom Malaysia, renewal of a large insurance client, and a major potential deal with a leading overseas data platform.
It also said CTOS' international business has a strong pipeline of customers to tap upon to up- and cross-sell its products.
It revised its profit estimates for FY24-FY25 by two to five per cent.
CTOS is revising its FY24 net profit guidance from RM125-130 million to RM110 million-RM115 million, which implied a 14 per cent decrease from the initial guidance.
This revision is due to a lower contribution from Juristech following a delay in new project conversion for financial institution customers, lower dividend income from RAM, and an additional RM10 million investment to expand its sales team that supports new channel customers, scale up regional operations, enter a new market (Singapore), and increase marketing campaigns to raise its brand value.
Meanwhile, CIMB Securities cut the CTOS' earnings per share forecasts for FY24-FY26 by 12 per cent to 15 per cent to reflect the lower profit from associates and a higher operational expenditure to support its regional expansion strategy.
It also downgraded the stock to 'hold' from 'buy' previously with a lower target price of RM1.50 from RM1.85.
"We expect CTOS to register a moderate 4.7 per cent year-on-year YoY core net profit growth in FY24 (vs. 21.6 per cent in FY23).
"While we like CTOS' regional expansion growth potential, it may require an extended period for the group to scale up its regional operation to drive a meaningful earnings contribution," it said.