PETALING JAYA: CTOS Digital Bhd will have greater opportunities to cross-sell its products following a recent corporate acquisition.

       CTOS had recently increased its stake in RAM Holdings Bhd by 3.5% which would bring its total stake in the company to 8.1%.

       The acquisition by CTOS from vendor Standard Chartered Bank Malaysia for RM7.61mil is deemed as “fair” by Kenanga Research.

       “This implies a share price of RM21.74, on par with the previous purchase price of RM21.84. Based on RAM’s financial year 2020’s (FY20) net profit of RM8.4mil, it implies a trailing price to earnings ratio (PER) of 26 times, which we think is fair and in line with other listed credit rating agencies globally,” the research house said.

       The RM7.61mil will be fully funded by the proceeds that have been raised at its recent initial public offering that was earmarked for acquisitions.

       “With the CTOS additional stake in RAM, there is greater incentive for cross-selling between both parties. We think any offerings of existing RAM products or new hybrid products to CTOS customers will fuel the company’s earnings growth,” Kenanga Research said.

       “Specifically, we think CTOS likely has a great interest to tap into RAM’s sustainability ratings and services, given heightened environmental, social, and governance (ESG) awareness in business and investment decisions,” it added.

       It also noted that the earnings accretion from the 3.5% stake acquisition is insignificant, but added that there is potential for upside surprises moving forward.

       This would be so should there be any cross-selling drive faster-than-expected synergistic growth in CTOS key accounts.

       Kenanga had upgraded its rating on CTOS to an outperform from market perform with an unchanged target price of RM2.

       “We see value at the current share price.The share price correction has presented an attractive opportunity to own a scarce Asean-listed credit rating agency. The current price of RM1.77 implies a FY22 forecast PER of 49.3 times, compared to our ascribed 55 times,” it said.

       Kenanga said CTOS continues to deserve a 55 times PER valuation for its market leader status with 71.2% share in an under penetrated market while there is also robust industry growth anticipated moving forward when compared to its developed nation peers.