“Then you have that blended gross margin has fallen from 87% FY2021 to 68% FY2025. Most of this reflects reversing COVID-era cost waivers and FinScore international expansion at structurally lower margins (improving quarter-over-quarter) - none of which reflects underlying franchise deterioration.”
Could you elaborate on the cost waivers and Finscore?
Operating margins fell faster than GPM. YoY OP growth only turned positive in the recent quarter.
I mean during covid fixed price subscription revenue stayed up, but variable costs went down (were waived) causing artificially high margins. maybe 5-9 points drop in gross margins when this normalised.
FinScore - the Philippines-based alternative credit scoring company (telco data, 400+ variables) that CTOS acquired 100% of in August 2023 - currently runs at a lower gross margin than the Malaysian core bureau, reducing average gross margins.
Operating margins fell more than gross margins because: sales & marketing for Philippines expansion, IR, audit, compliance board cost post IPO increasing with international expansion, R&D and product development, increased stock based compensation, depreciation and amortisation from international acquisitions.
And yeah, operating profit is something to keep an eye on, if the growth trend turns down again, that would not be great.
As to future margin expectations:
GPM: 2026 unchanged/slighly up, long term 73%-75% maybe, it s not going back to 87%
OPM: 2026: 24% - 28%, long term above 30%, (but below 40%), not going back to pre IPO levels above 40% because more costs being a listed company, international operations having lower margin even when consolidated/mature, higher SBC
This is a great business no doubt. Same with Credit Bureau SG. Since this isn't growing too high, any thoughts on how they're going to return capital to share holders or raise margins? And then how long do you think the runway is, especially for their newer markets/acquisitions?
You got a few years of consolidation and scaling the acquired businesses to full utilisation, but beside that, the runway is probably longer than the rest of our lives.
GDP growth raises the absolute size of the economy - more businesses, more consumers, more transactions to credit-check.
Credit growth typically runs faster than GDP in emerging markets as the financial system deepens - credit-to-GDP ratio rises as more people get mortgages, SMEs get formal loans, consumer credit penetrates further.
Malaysia has 69% untapped consumers, and CTOS will benefit from GDP and credit growth for a very long time. Thailand, Philippines, Indonesia all sit at lower credit penetration than Malaysia, and BOL (Thailand) has the same regulatory-mandate setup CTOS has at home.
As to return of capital CTOS already pays out the bulk of earnings as dividends, it was just overshadowed by the M&A spend. Now I think they’ll focus on integrating and sorting out the acquisitions more than making new acquisitions.
FrontierViking, thanks for your analysis.
“Then you have that blended gross margin has fallen from 87% FY2021 to 68% FY2025. Most of this reflects reversing COVID-era cost waivers and FinScore international expansion at structurally lower margins (improving quarter-over-quarter) - none of which reflects underlying franchise deterioration.”
Could you elaborate on the cost waivers and Finscore?
Operating margins fell faster than GPM. YoY OP growth only turned positive in the recent quarter.
What are your expectations over future margins?
Thanks
I mean during covid fixed price subscription revenue stayed up, but variable costs went down (were waived) causing artificially high margins. maybe 5-9 points drop in gross margins when this normalised.
FinScore - the Philippines-based alternative credit scoring company (telco data, 400+ variables) that CTOS acquired 100% of in August 2023 - currently runs at a lower gross margin than the Malaysian core bureau, reducing average gross margins.
Operating margins fell more than gross margins because: sales & marketing for Philippines expansion, IR, audit, compliance board cost post IPO increasing with international expansion, R&D and product development, increased stock based compensation, depreciation and amortisation from international acquisitions.
And yeah, operating profit is something to keep an eye on, if the growth trend turns down again, that would not be great.
As to future margin expectations:
GPM: 2026 unchanged/slighly up, long term 73%-75% maybe, it s not going back to 87%
OPM: 2026: 24% - 28%, long term above 30%, (but below 40%), not going back to pre IPO levels above 40% because more costs being a listed company, international operations having lower margin even when consolidated/mature, higher SBC
Thank you!
This is a great business no doubt. Same with Credit Bureau SG. Since this isn't growing too high, any thoughts on how they're going to return capital to share holders or raise margins? And then how long do you think the runway is, especially for their newer markets/acquisitions?
Thanks!
You got a few years of consolidation and scaling the acquired businesses to full utilisation, but beside that, the runway is probably longer than the rest of our lives.
GDP growth raises the absolute size of the economy - more businesses, more consumers, more transactions to credit-check.
Credit growth typically runs faster than GDP in emerging markets as the financial system deepens - credit-to-GDP ratio rises as more people get mortgages, SMEs get formal loans, consumer credit penetrates further.
Malaysia has 69% untapped consumers, and CTOS will benefit from GDP and credit growth for a very long time. Thailand, Philippines, Indonesia all sit at lower credit penetration than Malaysia, and BOL (Thailand) has the same regulatory-mandate setup CTOS has at home.
As to return of capital CTOS already pays out the bulk of earnings as dividends, it was just overshadowed by the M&A spend. Now I think they’ll focus on integrating and sorting out the acquisitions more than making new acquisitions.
Thanks