KUALA LUMPUR: CTOS Digital Bhd is poised to return to positive earnings growth in financial year 2026 (FY26) following a strong fourth-quarter (Q4) performance, according to CIMB Securities Sdn Bhd.
The research house said the improved outlook is underpinned by higher adoption of new products among key accounts and better operating efficiency, driven by infrastructure modernisation and the adoption of artificial intelligence (AI).
"The group has allocated RM30 million to RM35 million in FY26 capital expenditure to support new product development and the adoption of AI across key workflows, including product development and the automation of manual processes in operations such as contact centres.
"In addition, CTOS intends to pare down borrowings using proceeds from the disposal of Experian Information Services (EIS), which we estimate could translate into RM2.5 million to RM3 million in interest savings in FY26," it said in a note.
The credit reporting and digital solutions firm reported an 80.5 per cent quarter-on-quarter (QoQ) surge in net profit for Q4, largely driven by a one-off gain of RM17.9 million from the disposal of its 26 per cent equity stake in EIS in December 2025.
Core net profit, excluding exceptional items, rose 10 per cent QoQ to RM27.8 million, while revenue increased six per cent QoQ to RM88.0 million, supported by higher service uptake across decision analytics, business information, and identity and fraud solutions.
For the full year, CTOS posted a seven per cent year-on-year (YoY) increase in revenue. However, core net profit declined 17.5 per cent YoY to RM89.3 million due to higher operating expenses and an unfavourable sales mix.
CIMB Securities said the full-year results were in line with CTOS' management guidance for normalised profit after tax and minority interests of RM85 million to RM90 million.
The international segment delivered particularly strong growth, with revenue rising 17.5 per cent YoY and profit after tax increasing 8.2 per cent YoY in FY25.
The group declared a fourth interim dividend of 0.86 sen for Q4, bringing total FY25 dividends to 2.70 sen per share, above analysts' expectations. Total dividends paid amounted to RM61.7 million, representing a payout ratio of 70 per cent.
CTOS is targeting a nine per cent revenue and 18 per cent net profit compound annual growth rate over the 2025-2028 period, driven by new product launches, improved operational efficiency and stronger operating leverage.
CIMB Securities said investor concerns over CTOS' management transition have eased following the appointment of Ankur Sehgal as group chief executive officer effective Jan 16, after Tan Ming Yew was named group chief financial officer in October 2025.
The research house added that the leadership changes mark the completion of the company's management restructuring, providing clearer strategic direction and execution priorities.
CIMB Securities maintained its "Buy" rating on CTOS, with an unchanged target price of RM1.20 based on a 24 times FY27 price-to-earnings multiple.
It noted that CTOS' lower net gearing of 7.2 per cent as at Dec 31, 2025, compared with 24.1 per cent a year earlier, provides financial flexibility to fund growth initiatives and absorb near-term execution risks.
