Summary

• Rexit Bhd (REXIT) 4Q22 core net profit declined 7.3% YoY to RM2.4m, bringing its FY22 core net profit to RM9.3m (-6.7% YoY). The results came in slightly below expectations, amounting to 93.0% of our full year forecast of RM10.0m. Key deviations were mainly due to the higher-than-expected depreciation expenses incurred in the current quarter.

• Core net profit decreased YoY, primarily attributed to a higher depreciation in the current quarter due to a full-year depreciation effect on the new data centre which was moved in 2021. Besides, the lower core net profit was caused by a higher tax rate in 4Q22 as compared to the previous corresponding quarter as REXIT claimed a higher capital allowances of 60.0% (20.0% initial allowance and 40% annual allowance) in 4Q21 on the new data centre acquired.

• QoQ, core net profit improved 29.7% despite a lower revenue, due to lower tax payable in the current quarter resulted from the capital allowances claimed on acquisition of data centre assets.

• Moving forward, outlook of the group may remain challenging given the global geo political risks as well as uncertainties over global economic growth. Nevertheless, REXIT is committed to its expansion strategies to bring two new customers on board in FY23 and FY24 respectively, while gaining new business from existing customers.

• We believe the contribution from e-PPA will rise when investors’ sentiment improves, which may drive the unit trust companies’ performance. Meanwhile, e Cover remained as REXIT’s core business, contributing around 80.0% of its revenue, including subscription fees and transaction fees. We continue to like subscription basis as part of REXIT’s business model wherein the group can count on a steady revenue stream once it gets customers on board.

• We do not expect any significant upgrade of existing data centre at least in the next three years following the migration to Tier 3 certified data centre at TM One. Any capex required during the software development process for the two new customers will be backed by REXIT’s net cash position (RM26.5m in 4Q22, net cash per share of 15.2 sen).

Valuation & Recommendation

• Although the core net profit came in slightly below our expectations, we maintain our forecasted earnings for FY23f and FY24f at RM10.4m and RM11.3m respectively. Meanwhile, FY25 net income is introduced at RM11.9m, which will take into account the contributions from the two new customers in FY23 and FY24.

• We retained our BUY recommendation on REXIT, with an unchanged target price at RM0.83. The target price is derived by ascribing a P/E of 14.0x to FY23f EPS of 5.9 sen. Whilst the group does not have a fixed dividend policy, we assumed a payout of 3.9-4.4 sen per share over the next three years based on historical trend, representing payout ratio of 65.0% of its distributable income from FY23f to FY25f.

• Risks to our recommendation include security risks and system disruptions such as computer viruses and system outage which could affect the group’s ability to deliver its products. Besides, the group is vulnerable to risks of delay in software rollout. Any shortages in qualified manpower could cause a delay in its developing process.

Source: Mplus Research - 26 Aug 2022