Rexit Bhd’s (Rexit) 1QFY24 core earnings came within Malacca Securities’ expectation, accounting to 24.6% and 25.6% of its forecasts and consensus estimates of RM11.4 million and RM11 million.
The research house, in its Stock Digest today (Nov 29), said given the satisfactory core earnings, it maintained its forecasted earnings at RM11.4 million and RM12 million for FY24f-25f.
However, it downgrades it call to HOLD with an unchanged TP at RM0.925, given the recent rally in share price prior to the release of the financial results.
“The target price is derived by ascribing a P/E of 14.0x to FY24f EPS of 6.6 sen. However, we have revised upwards the dividend payout ratio to 75% (from 60%), translating to DPS of 5.0 to 5.2 sen over the next two years,” it said.
Malacca Securities managed to record core earnings of RM2.8 million, which increased 16% YoY, but contracted 23.2% QoQ against 1QFY23 due to lower software customization services.
For the quarter under review, 5 sen dividend was announced and will be ex on Dec 12 and will be paid on Dec 27. This is an increase of dividend from 4 sen that was paid in FYE Jun-23.
As at FY23, Rexit’s net cash position stood at RM27.5 million, which is 20.3% of the market cap, translating to a net cash per share of 15.9 sen.
“Going forward, we expect the customization services segment to grow at a softer pace after last quarter’s boost.
“Concurrently, the broader insurance industry is poised to become increasingly digitalized post Covid-19 environment, likely generating more transactional revenue for Rexit through the e-Cover system.
“We reckon that Rexit’s clients will remain loyal to the group’s offerings, expecting the continuity in their engagement,” Malacca Securities added.
The research house said recommendation risks include the potential non-renewal of any of the outsourcing services agreement, where in the event of a non-renewal of the agreement, it could have negative impact on the group’s revenue.
“Besides, Rexit is vulnerable to the risks of security risks and system disruptions such as computer viruses, fraud, and power outages, which may potentially hinder the group’s ability to deliver its products and services,” it added.
