Review

• Excluding a foreign exchange loss of RM0.6mn, Rexit’s 1QFY25 core profit of RM2.4mn came in below expectations, accounting for 17.0% of our fullyear estimate (12-month ending June-25). The variance was largely due to higher-than-expected administrative expenses.

• YoY, 1QFY25’s core profit fell 14.5% to RM2.4mn, primarily owing to higher administrative expenses. As a result, the core profit margin dropped by 8.5%-pts to 32.0%. Nevertheless, the group saw its revenue jump 8.2% to RM7.5mn, thanks to higher sales.

• QoQ, 1QFY25’s core profit dropped 18.3% to RM2.4mn despite revenue was 1.9% higher at RM7.5mn. The weaker bottom line was primarily due to higher administrative expenses. Meanwhile, the revenue growth was due to the increase in software customisation service.

• Its balance sheet remains solid with zero debt and a net cash position of RM30.0mn as at end-1QFY25.

Impact

• The Board has approved the change of financial year end from 30 June 2024 to 31 December 2024. Therefore, the financial period (FP) 24 should comprise 18-month earnings from 1 July 2023 to 31 December 2024.

• Our earnings forecasts have been revised to incorporate a change in the financial year-end from 30th June to 31st December. As a result, we are introducing new earnings forecasts for FP24/FY25/FY26 of RM17.7mn, RM13.1mn, and RM14.5mn, respectively.

Outlook

• Generally, we expect the short-term sentiment for this stock to remain weighed down by the pending outcome of the independent review. Recap, the group had recently engaged LGMS Bhd as an independent cybersecurity audit firm to reaffirm its data security measures against alleged breaches. This decision follows the sentencing of two of the group’s major shareholders to jail by a Singaporean court for conspiring to illegally obtain data on over 9,000 individuals.

• We believe that the business operations will remain intact as the independent review will not affect daily operations. Meanwhile, the independent cybersecurity audit is expected to be completed by end of this year.

Valuation & Recommendation

• We take this opportunity to cut the target PE multiple for REXIT from 12x to 10x to account for the uncertainty surrounding allegations of potential internal data breaches. Taken together with the revision of earnings forecasts, we tweaked the target price from RM1.03 to RM0.80, based on 10x CY25 earnings. Downgrade the stock from Buy to Hold.

Source: TA Research - 21 Nov 2024