Review

• Rexit’s 9MFY23 net profit of RM7.3mn (+4.8% YoY) came within our full-year estimates at 77.3%.

• YoY. 9MFY23’s revenue and net profit both grew 4.8% YoY to RM19.5mn  and RM7.3mn respectively. This was driven by increased software  customisation services. Net profit margin remained strong and resilient at  37.6% (unchanged YoY).

• QoQ. 3QFY23’s net profit declined 19.7% QoQ to RM2.2mn as revenue  fell 10.2% QoQ to RM6.1mn on lower software customisation services.

• Rexit maintained a robust balance sheet with cash and cash equivalents of  RM25.7mn (or 14.8sen/share) and zero borrowings.

Impact

• We maintain our earnings estimates.

Outlook

• From FY23F to FY25F, we forecast Rexit to continue its stable growth  trajectory, with revenue and core net profit increasing at a CAGR of 2.0%  and 3.3% to reach RM26.4mn and RM10.4mn in FY25F. We expect growth  to be driven by the increased utilisation of its e-Cover system by both  existing and new customers. This will be supported by e-Cover system’s  expanding coverage of insurance classes and enhancement of solutions and  services. Note that our forecast for low-single digit growth aligns with that  of Malaysia’s general insurance industry which saw total gross direct  premiums expand 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  resilient business model, exposure to the insurance sector, and strong  margin, 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 5.3% to 5.6%.

• 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 - 23 May 2023