KUALA LUMPUR: Analysts today said they see no immediate threat to CTOS Digital Bhd's business continuity, with subcriber base unaffected by the KL High Court ruling that Credit Rating Agencies (CRAs) are not legally empowered to formulate credit scores.
RHB Investment Bank research said CTOS Digital management had clarified the matter with the Registrar Office of Credit Reporting Agencies (PPK) and Bank Negara Malaysia (BNM) to confirm that CTOS is allowed and licensed to provide credit-related products under CRA 2010.
"Based on our channel checks with some financial institutions that subscribe to CTOS' services – and also from CTOS' own conversations with clients – the subscription to its services is unaffected," it said in its note today.
The High Court ruling was for a defamation suit filed against CTOS's unit, where it was ordered to pay RM200,000 to a businesswoman for inaccurate rating.
CTOS Digital management believs there is a strong basis for an appeal and a Notice of Appeal has been filed to the Court of Appeal, and no material loss is anticipated.
The development however has increased CTOS Digital risk premium seeing two out of three research houses cut their target price on the stock.
RHB research has cut its target price for the company to RM1.77 from RM1.93 a share.
"While the risk premium has certainly risen, in view of this negative development, the share price selldown is overdone, providing an entry to a leading credit reporting agency (CRA) with a recession–proof business and growth avenues in the digitalisation age," it said in its note.
Hong Leong Investment Bank (HLIB) estimates that CTOS Digital could see a 30 per cent decrease in bottom line if the credit scoring business is fully removed.
"Also, CTOS does not foresee any substantial rise in operation expenditure for data clean up and further accuracy validation works," according to HLIB.
HLIB recommended a buy call with a lower target price of RM1.45, where this is now probability-weighted to two different scenarios (winning or losing its appeal).
Maybank Investment Bank (Maybank IB) said despite share price undergoing a steep 14 per cent correction yesterday, it believes regulatory risks to its business at this juncture are contained.
"Accordingly, we raise our rating on CTOS to a "buy" call while keeping our forecasts for financial years 2024 to 2026 unchanged with a target price of RM2.10," it said in a note.
Despite the ruling, the court did not bar or injunct CTOS Digital's unit CTOS Data Systems Sdn Bhd from providing credit scores.
"We take comfort in management's comments post-discussion with their legal counsel that despite the legality of CTOS' business continuity being called into question as part of the judge's comments, it may not be used as precedent in future litigation," said Maybank IB.