Review

• Rexit’s FY23 net profit of RM11.0mn (+20.9% YoY) beat our full-year estimates at 116.0% due to higher-than-expect revenue, particularly from software customisation services.

• YoY. FY23’s net profit increased 20.9% YoY to RM11.0mn as revenue grew 7.5% YoY to RM26.7mn on higher contributions from software customisation services. In tandem with the better service mix and lower taxes, the net profit margin expanded 4.6pp YoY to 41.2%.

• QoQ. 4QFY23’s revenue and net profit increased 17.5% QoQ and 67.9% QoQ to RM7.2mn and RM3.7mn. The robust performance was boosted by the increase in software customisation services.

• Rexit maintained a healthy balance sheet with cash and cash equivalents of RM27.5mn (or 15.9sen/share) and zero borrowings.

Impact

• Our FY24F/FY25F earnings forecast are revised marginally by -0.1%/+0.4% to RM10.0mn/RM10.5mn as we impute FY23 year-end figures into our model. We also introduce our FY26F earnings estimate of RM10.9mn.

Outlook

• From FY24F to FY26F, we forecast Rexit to exhibit resilient revenue with stable growth, underpinned by increased utilisation of its e-Cover system by existing and new customers. Meanwhile, we also view the upside to revenue from ancillary software customisation services.

Valuation & Recommendation

• As we roll forward our base year valuation to CY24F, our TP for Rexit is revised slightly lower to RM0.825 (previously RM0.84) based on a target PE of 14.0x, which aligns with the stock’s 5-year mean. Given the narrowed risk-reward potential, we downgrade our recommendation on Rexit from Buy to Hold. We continue to like Rexit for its resilient business model, exposure to the defensive insurance sector, and strong margin.

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

Source: TA Research - 23 Aug 2023