Summary

• To recap, REXIT’s 3Q23 core net profit climbed 5.9% YoY to RM2.2m, bringing the 9MFY23 core net profit to RM7.3m. Similarly, the margin expanded for the quarter due primarily to the higher margin resulted from increase in other income, coupled with the lower administrative expenses.

• Meanwhile, QoQ, core net profit declined 20.0% in line with the lower revenue, no thanks to lower contribution from the software customisation services segment.

• We remain optimistic about REXIT’s current negotiations with prospective new clients. Should a successful agreement is reached; the client is anticipated to come on board during 4Q23, initially contributing through motor e-Cover service, and subsequently expanding into non-motor transactions in 1HCY24. We like the introduction of the new revenue stream from the client through subscription-based services, which will generate a steady and recurring income.

• Meanwhile, the group is in discussions with another potential client, aiming to on board them by FY24. As for the mySalam Outsourcing Services Agreement, this began on 1st January 2019 and is set to expire on 31st December 2023.

• Moving forward, REXIT will remain committed to expand the e-Cover services to the financial services sector and other segments of e-commerce. Additionally, the group will persist in marketing its services to the regional market. However, outlook of the group remains challenging due to the global economic uncertainties.

Valuation & Recommendation

• In our last report, REXIT’s earnings may come in at RM9.9m, RM10.3m, and RM10.6m for FY23-25f, respectively. The forecasted earnings take into account the recurring contributions from existing customers, as well as the new source of revenue from the customers who are expected to be on board in FY23 and FY24.

• We have BUY recommendation on REXIT, with a target price of RM0.83. The target price is derived by ascribing a P/E of 14.0x to FY24f EPS of 5.9 sen. Based on historical trend, we assumed a payout of 3.7-4.0 sen per share over the next three years, representing a payout ratio of 65.0% of its distributable income from FY23- FY25f.

• Risks to our recommendation include the potential non-renewal of the mySalam Outsourcing Services Agreement. In the event of a non-renewal of the agreement, it could have a detrimental effect on the group’s revenue. Besides, REXIT is vulnerable to the risks of security risks and system disruptions such as computer viruses, fraud, and power outages, which may potentially hinder the group’s ability to deliver its products and services.

Source: Mplus Research - 22 Aug 2023