Hong Leong Cuts CTOS to Sell Despite Earnings Beat, Warns Service Restoration Won’t Bring Immediate Recovery
Octopaul AI ·
Hong Leong Investment Bank analyst Raymond Ng Ing Yeow downgraded CTOS Digital to “Sell” from “Hold”, cutting his target price to RM0.36 from RM0.50, implying an 11.1% downside. Its core net profit for the first nine months of 2026 rose 13.5% year-on-year to RM68.4 million, exceeding his expectations, but he believes the cybersecurity disruption leaves subsequent earnings visibility weak.
Raymond does not expect an immediate recovery once services resume, as customers may take time to reactivate services and restore transaction volumes. Although management has yet to observe material contract terminations, prolonged disruption could allow competitors to gain business. CTOS may also need to offer fee waivers, credit notes and defer selected price increases for up to 12 months, weighing on revenue and margins.
Management expects an additional RM10 million–RM15 million in cybersecurity and regulatory-compliance investment in 2027, roughly split between capital and operating expenditure. Together with the expiry of its pioneer-status tax incentive in November, this could constrain profitability during the recovery.
Meanwhile, Maybank Investment Bank analyst Lucas Sim also downgraded CTOS Digital to “Hold” from “Buy”, cutting his target price to RM0.43 from RM0.68. He believes the prolonged service suspension has pushed back the earnings recovery, with the disruption’s impact already exceeding management’s initial RM12 million estimate. Each additional week of suspension is estimated to reduce net profit by RM1.3 million.
Lucas cut his 2027–2028 earnings forecasts by approximately 6% each, reflecting higher cybersecurity expenses and margin pressure from customer-compensation efforts. Management remains cautiously optimistic about revenue growth in 2027, with a stronger recovery expected in 2028 as operations normalise. Potential cyber-insurance recoveries in 2027 could cushion the disruption’s financial impact, although the service-restoration timeline remains uncertain.
As of 9:22 a.m. on October 30, CTOS Digital’s share price fell 2.5% to RM0.395.
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