Review

• Rexit’s 1QFY24 net profit of RM2.8mn (-23.2% QoQ, +16.0% YoY) came within our full-year estimates at 25.0%.

• Rexit declared an interim dividend of 5.0sen (1QFY23: 4.0sen). As Rexit typically declares dividend once a year, we deem the payout as above our expectations of 4.5sen. At current levels, the interim dividend of 5.0sen translates to a yield of 5.4%.

• YoY. 1QFY24’s net profit increased 16.0% YoY to RM2.8mn as revenue grew 6.6% YoY to RM7.0mn on higher software sales and services.

• QoQ. 1QFY24’s net profit slipped 23.2% QoQ to RM2.8mn as revenue fell 3.5% QoQ to RM7.0mn on lower software customisation services.

• Rexit maintained a robust balance sheet with cash and cash equivalents of RM31.3mn (or 18.1sen/share) and zero borrowings.

Impact

• Our FY24F to FY26F earnings forecast are revised marginally by +0.1% as we: i) impute FY23 year-end audited figures into our model, and ii) revise FY24F/FY25F DPS to 5.0sen/5.0sen (previously 4.5sen/4.8sen) which implies a payout ratio of 76.9%/73.3%.

Outlook

• From FY24F to FY26F, we forecast Rexit to exhibit resilient revenue with stable single-digit % growth, underpinned by increased utilisation of its eCover system by both existing and new customers. Rexit’s e-Cover system is a proprietary online insurance transaction system which facilitates insurance companies and their intermediaries to deliver products and services electronically. Additionally, we also view upside to Rexit’s revenue from ancillary software customisation services.

Valuation & Recommendation

• In all, we maintain our TP for Rexit at RM0.93 based on a target PE of 14.0x CY24F EPS, closely in line with the stock’s 5-year mean. However, given the stock’s narrowed risk reward potential following recent share price appreciation, 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, as well as robust ROE and rich double-digit margin.

• 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 - 29 Nov 2023