Court ruling solidifies CTOS' credit reporting role, boosts industry confidence, say analysts

• “We believe that the above could eliminate any existing doubt, and ambiguity that could be posed from interpreting the Act (Credit Reporting Agencies Act) in future cases,” said Kenanga Research.

KUALA LUMPUR (July 10): The Court of Appeal's decision to overturn a defamation case in favour of CTOS Digital Bhd's (KL:CTOS) unit confirms its legal right to publish credit scores, boosting the group’s credit reporting business, said analysts.

“We believe that the above could eliminate any existing doubt, and ambiguity that could be posed from interpreting the Act (Credit Reporting Agencies Act) in future cases,” said Kenanga Research in a note on Wednesday.

The house upgraded CTOS to 'outperform' (from 'underperform'), and its target price or TP to RM2 (from RM1.15). 

“We revert to our discounted cash flow inputs of weighted average cost of capital (WACC) of 6% (from 7%) and a terminal growth rate of 3.5% (from 0%), as the risk premium overhanging to the stock evaporates,” added Kenanga.

Meanwhile, RHB Research said the development is a boost to CTOS and the credit reporting agency (CRA) business as a whole, given that the legality of formulating and publishing credit scores is no longer in doubt.

“And such a verdict may deter similar claims in the future,” said RHB in a note on Wednesday.

RHB maintained its 'hold' call, but raised its TP to RM1.84 (from RM1.77) due to a lower risk premium, now that the legality of credit scoring in the CRA business is established, and the initial High Court ruling's dismissal prevents potential claims against CTOS.

“We continue to favour CTOS as the leading CRA with a recession-proof business model and multiple growth opportunities in the digital age, ensuring solid earnings and cash flow,” it added.

Hong Leong Investment Bank (HLIB), however, said while this is a positive win for CTOS, the market has taken into account the Court of Appeal’s outcome.

“This is because its share price had recovered to RM1.45/share, from a low of RM1.05/share, when the negative High Court ruling was first announced.

“That said, before the price plunge, CTOS only managed to reach a one-year peak of RM1.52/share, and most of the time, it was oscillating sideways. Thus, we think the share price upside from hereon could be rather limited,” added the research house.

HLIB maintained its 'hold' rating, but raised its TP to RM1.60 (from RM1.50), after adjusting scenario probability weights and increasing its WACC assumption to 8.8% (from 8.3%) due to sustained higher interest rates.

Its new valuation implies a 27 times price-earnings for the financial year ending Dec 31, 2025, above the global peers' average of 22 times, but in line with the five-year mean of 28 times, which it considers fair given the high growth potential of the underpenetrated Asean market, positioning the company’s risk-reward profile as balanced.

At the time of writing on Wednesday, CTOS shares were unchanged at RM1.45, valuing the company at RM3.35 billion.

In March, the High Court ruled that CTOS could not formulate its own credit score, limiting it to a repository role for subscribers' credit information, and ordered it to pay RM250,000 to businesswoman Suriati Mohd Yusof for an inaccurate negative credit rating.

On Tuesday, the Court of Appeal unanimously overturned the High Court decision. It ruled that the plaintiff had not established a case for defamation, negligence, or breach of statutory duties against CTOS Data Systems, a subsidiary of CTOS.

The court also determined that CRAs do not owe a duty of care under common law, and are permitted to formulate and publish credit scores under the Act.

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