With a Buy recommendation, we initiate coverage on Rexit Berhad, a provider of information technology solutions and services mainly to the general insurance industry. We derive a TP of RM0.84 based on a target PE of 15.0x CY23 EPS, which is premised on its established track record, experienced and knowledgeable management team, resilient business model, strong margin (FY18 to FY22: 34.7% to 39.2%), and high return on equity (FY18 to FY22: 21.0% to 23.4%). On top of its solid fundamentals, Rexit’s resilient business model and exposure to the insurance sector, we opine that the stock would appeal to investors seeking a defensive investment strategy amid prevailing macroeconomic headwinds. Additionally, at current levels, forward yields for FY23F to FY25F are decent at 5.0% to 5.4%.

Investment Merits

1. Established Track Record within Insurance Industry

2. Experienced & Knowledgeable Management Team

3. Resilient Business Model

Earnings Forecast

From FY23F to FY25F, we project Rexit to sustain its stable growth trajectory, with revenue and core net profit growing at a 3-year CAGR of 2.0% and 3.3% to RM26.4mn and RM10.4mn in FY25F. We expect growth to be supported mainly by increased utilisation of its e-Cover from existing and new customers on the back of expanded coverage of insurance classes and enhancement of solutions and services. The low-single-digit growth mirrors that of Malaysia’s general insurance industry, where total gross direct premiums expanded at a 10-year CAGR of 2.7% to RM17.7bn in 2021.

Source: TA Research - 28 Sept 2022