Review

• Rexit’s 1HFY23 net profit of RM5.2mn (+0.3% YoY) came within our fullyear estimates at 54.3%.

• YoY. 1HFY23’s net profit improved marginally 0.3% YoY to RM5.2mn as higher revenue was largely offset by lower other income and higher administrative expenses. Revenue increased 11.2% YoY to RM13.4mn mainly due to increased software customisation services.

• QoQ. 2QFY23’s net profit increased 12.1% QoQ to RM2.7mn as revenue climbed 4.7% QoQ to RM6.8mn, driven by increased software customisation services.

Impact

• We maintain 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

• In all, 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 5.2% to 5.5%.

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

Source: TA Research - 20 Feb 2023