Summary

• In-line with expectations. For 1QFY24, Rexit Berhad (REXIT) managed to record core earnings of RM2.8m, which increased 16% YoY, but contracted 23.2% QoQ against 1QFY23. The core earnings came in within expectation, accounting to 24.6% and 25.6% of ours and consensus estimates of RM11.4m and RM11.0m.

• Dividend. 5 sen dividend was announced this quarter and will be ex on 12th of December and will be paid on 27th December. This is an increase of dividend from 4 sen that was paid in FYE Jun-23.

• QoQ. Core PATMI contracted 23.2% QoQ, due mainly to lower software customization services.

• YoY. The core PATMI rose 16.0% YoY, thanks to the increase in software sales and services which contributed to the increase of revenue by 6.61% to RM7.0m vs. RM6.5m in 1QFY23.

• 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.

• Outlook. Going forward, we expect the customization services segment to grow at a softer pace after last quarter’s boost. Concurrently, the broader insurance industry is poised to become increasingly digitalized post Covid-19 environment, likely generating more transactional revenue for Rexit through the e-Cover system. We opine that Rexit’s clients will remain loyal to the Group’s offerings, expecting the continuity in their engagement.

Valuation & Recommendation

• Forecast unchanged. Given that the core earnings came in within expectations, we maintained the forecasted earnings at RM11.4m and RM12.0m for FY24f-25f.

• Downgrade to HOLD with TP at RM0.925. Given the recent rally in share price prior to the release of the financial results, we downgrade to HOLD with an unchanged TP of RM0.925. The target price is derived by ascribing a P/E of 14.0x to FY24f EPS of 6.6 sen. However, we have revised upwards the dividend payout ratio to 75% (from 60%), translating to DPS of 5.0-5.2 sen over the next two years.

• Recommendation risks include the potential non-renewal of any of the outsourcing services agreement, where in the event of a non-renewal of the agreement, it could have negative impact 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 - 29 Nov 2023