Review

• Rexit’s 1QFY23 net profit of RM2.4mn (-0.7% QoQ, -7.5% YoY) came within our full-year estimates at 25.6%.

• Rexit declared an interim dividend of 4.0sen (1QFY22: 4.0sen) which at the stock’s current level implies a yield of 5.4%.

• 1QFY23’s net profit fell 7.5% YoY to RM2.4mn despite higher revenue mainly due to lower other income, higher administrative expenses, and higher taxes. Revenue grew 7.0% YoY to RM6.5mn mainly due to higher software customisation services.  Impact

• We make no changes to our earnings estimates.

Outlook

• 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.

Valuation & Recommendation

• We maintain our Buy recommendation on Rexit with a TP of RM0.84  based on a target PE of 15.0x against CY23F EPS. Anchored by Rexit’s solid fundamentals, 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 5.4% to 5.6%.

• Key downside risks include: i) security risks and system disruptions, ii)  failure to adapt to the latest technological developments and iii) non-renewal of mySalam outsourcing services agreement.

Source: TA Research - 22 Nov 2022