Armed with IPO proceeds, Malaysia’s CTOS eyes acquisitions, digital banking ties

Kuala Lumpur, Malaysia. Photo by Kah Hay Chee on Unsplash

Credit reporting agency CTOS Digital, which was listed on the stock exchange in Malaysia in July, is eyeing more acquisitions in the country and elsewhere in Southeast Asia as it expands its services for companies in the region. 

The company, backed by Malaysian private equity firm Creador, has already deployed part of its IPO proceeds into acquiring stakes in top credit rating and credit bureau agencies. 

“We’re looking for opportunities, both domestic and offshore,” CTOS CEO Dennis Martin told DealStreetAsia in an interview. “We’re looking for organisations that we can invest in, either as a minority or a majority [shareholder], that will assist in our customers’ growth.”

The company has earmarked some RM58.7 million, or about a quarter of its IPO proceeds, for acquisitions. Since its IPO, CTOS has acquired a 4.63% stake in Malaysian credit rating agency RAM Holdings for RM10.05 million; and raised its stake in Thai commercial credit bureau Business Online PCL (BOL), acquiring 2.65% for RM26.8 million.

CTOS had in June 2020 acquired a majority stake in Philippine credit reporting agency CIBI Information, but divested it before the IPO, as the company was lossmaking and required more investment. 

Indeed, CTOS is actively in discussions to collaborate with potential digital banking licensees, Martin said. 

“Because if you’re going to be doing lending, there are a few things you need to be able to do,” he explained. “You’d need to be able to attract and onboard customers, and you’d have to make assessments based on the previous history of that customer. We have that information.”

“We’re a digital organisation, all our information is digitally-enabled, so we fit right into their remit.” 

For the nine months ended September 30, 2021, CTOS reported a 16% year-on-year rise in revenue to RM 114.4 million. Profit for the period rose 18% from the year before to RM 30.6 million.

CTOS was founded in 1990 by Chung Tze Keong and Chung Tze Wen as a credit reporting business. Martin joined the company in 2017, after nearly 40 years of experience in banking and credit reporting. 

Creador acquired a majority interest in CTOS in 2014 through its second fund for RM 215 million. According to the company’s IPO prospectus, Creador, under its vehicle Inodes, held an 80% stake before the listing, and was selling 720 million shares. It will hold a 40% stake post-IPO, with a six-month lock-up period.

CTOS’ IPO was the second major exit for Malaysian private equity firm Creador in under a year, following the stellar listing of Malaysian home improvement retailer MR DIY in October 2020. 

Investor interest in CTOS, as well as MR DIY, continues to be keen. Shares in CTOS have risen 65% from its IPO price, giving it a current market cap of RM4 billion. Shares in MR DIY are trading at more than double their price at IPO, giving the company a market cap of nearly RM 22 billion. 

Edited excerpts of the interview with Martin:

Could you take us through some of the acquisitions that CTOS has made?

BOL is a very strong and large corporate commercial credit bureau. We are very much focused on SMEs, consumer and key accounts; their strengths are all different from ours.

There were things that we want to take from them, products that they have, that we’re looking to see whether we can launch into Malaysia. Similarly, they really want to get into the areas where we’re very strong around the SMEs.

Our core product is called Credit Manager. It’s an online tool that our 17,000 SME customers use to evaluate credit opportunities, monitor their customer base, and help them in the collection side if possible. I think Thailand’s SMEs have similar needs. And so we’re looking to see whether we can position that product in Thailand.

Furthermore, BOL has a small shareholding in the consumer credit bureau in Thailand. It’s still early days, but it may present an opportunity for us to work with that bureau as well.

[In the case of RAM Holdings] we’re quite different and that means there’s good synergy. [For example] is there an opportunity for RAM Holdings to start to look at SME bond ratings? 

That’s something for them to decide on. If they do, then, of course, we’ve got information that’ll support that. 

They have analytics that can help supplement what we do. They’re in other areas, which our customers are very keen on. An example of that would be ESG. They have a solution for ESG that we’re looking to see whether that’s something we can bring to our customer base here in Malaysia as well.

What are your plans for further acquisitions?

If we can increase our stakes in RAM, or in [credit reporting agency] Basis, we’ll do that.

We’ve identified a few opportunities here in Malaysia that we think is worth pursuing, but it’s still early stage. And then we’ll continue to look offshore.

In terms of the Philippines, it’s unlikely we’re going to do anything there in the near term. The Philippines is a very difficult economy right now, for our industry. 

The reason we invested in the Philippines in the first place was, pre-COVID, they were just getting into the credit bureaus, it was attractive for us. But, post-COVID, the business in the Philippines took a real hard hit on the business. They went from being profit-making to loss-making very quickly. I think they need some time to recover as a country before we will look at them again. I would say that we do have a first right of refusal on that business, should they turn things around.

In terms of opportunities outside of Malaysia, Southeast Asia is probably the most obvious area to focus on. The reality is, we have a fantastic story to bring to Southeast Asia. We were a small family business, and now we’re worth circa $1 billion by market capitalisation. And we did that as a local company with local resources, building local products for local clients. 

What has the impact of the pandemic been on your business?

Obviously, we have had an impact, but not as significant as you’d expect. And there’s a couple of reasons for that. The first thing is that our industry is considered an umbrella-type organisation. 

In good times, [we see] a lot of transactions and credit checking going on, [as people] look to increase their market share through digital products. That was just right down our alley.

In bad times, people are very nervous and so they make a lot of credit checks to make sure they’re making good decisions. They want to reduce their overheads, so they turn more to digital products.

We had a lot more analytics products that supported our customers’ ability to upsell and cross-sell. Other products that we have, like eKYC, have really taken off as organisations realise that they have to be digitally enabled. It’s only been a year or so but we’ve got 55 contracts for that product, and it’s growing. And I think, by far, we’re the market leader in that space in Malaysia.

As soon as the doors were opened again, and the restrictions were off, our recovery was very, very strong. And we’ve seen that three times in three different lockdowns.

How did the business evolve while in the Creador portfolio?

[Creador] was prepared to invest ahead of the curve. So if you look at our numbers, in the first couple of years, revenue grew really, really well. But the money that we made was ploughed back into the business into new products and people, and infrastructure. 

When they bought it, the company had 80 or 100 people. We’re now 500 people. They also invested in bringing across talented people. 

We also didn’t have many products [then], and that was one of our challenges in future growth. But now we have 17 new products, and they’re involved in companies across their entire lifecycle. 

They made early dividends for us going forward, and so they were a fantastic partner for us. They were able to support us as and when we required.

Southeast Asia is seeing the growth of digital banking. Where does CTOS fit into that?

The government in Malaysia is looking to issue five digital banking licenses and there are many more than that applying for licenses. A majority of those organisations have been talking to us to help support them because if you’re going to be doing lending, there are a few things you need to be able to do. 

One, you’d need to be able to attract and onboard customers, and you’d have to make assessments based on the previous history of that customer. We have that information. And then how do you monitor them? We can do all of these things. And of course, we’re a digital organisation, all our information is digitally enabled, so we fit right into their remit. 

We’re at advanced discussions with a majority of these organisations to let us help them become that digital bank.

Beyond digital banking, what else are we expecting in terms of innovations in this particular industry?

We’re going to focus a lot more on analytics and insights. It’s no longer a case of just providing data; it’s about what the data means and how the data can help our customers, and what other data solutions outside of data can we do? 

That’s when you get into areas like machine learning, which we use in some of our products, and all the latest technology that we’re looking to adapt and adopt into our products. We need to be on top of that. We need to make sure that our customers are getting the best bang for their buck.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.