Summary

• Above expectations. In 4Q23, REXIT recorded a core net profit RM3.6m, rising 64.1% QoQ and 47.8% YoY, respectively, which brought FY23’s sum to RM10.9m. This came in above expectation at 109.5% vs. our forecast of RM9.9m. The positive deviation was due to higher-than-expected software customisation services and other income, coupled with lower-than-expected administration expenses.

• QoQ. Core net profit jumped 64.1% from RM2.2m, thanks to higher contribution from the software customisation services.

• YoY. Core net profits increased 47.8% from RM2.4m, supported by the above factor as well as significantly lower administrative expenses, which has reduced 36% YoY to RM1.4m.

• YTD. On the full year basis, core PATMI rose 13.9% to RM10.9m on the back of higher contribution from the software customisation services and the lower administrative expenses.

• Outlook. Given the administrative expenses in 2H22 was driven by (i) unrealised loss on the net fair value loss on investment in the money market funds and (ii) higher depreciation charges arising from the new data centre’s computer equipment which were acquired in 4Q21, we believe the administrative expenses may continue to stabilised around these levels.

• Net cash position. As at FY23, REXIT’s net cash position stood at RM27.5m (20.3% of the market cap), translating to a net cash per share of 15.9 sen. Its net cash position will be comfortable to support its capex required for any future expansion.

Valuation & Recommendation

• With REXIT’s core net profit came in above expectation, we raise our forecasted earnings from RM10.3m and RM10.6m to RM11.4m and RM12.0m, respectively for FY24-25f, respectively. The forecasted earnings consider higher contributions from existing customers with more revenue generated from software customisation services, as well as the new source of revenue from the customers who are expected to be on board going forward.

• We maintain BUY recommendation on REXIT, with a target price of RM0.925 (upside of 18.6%). The target price is derived by ascribing a P/E of 14.0x to FY24f EPS of 6.6 sen. Also, we assumed a payout of 4.0-4.1 sen per share over the next two years, representing a payout ratio of 60.0% of its distributable income from FY24-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 - 23 Aug 2023