This article first appeared in The Edge Financial Daily, on December 23, 2015.
REXIT (Fundamental: 1.95/3 Valuation: 1.1/3) should appeal to both yield and growth-seeking investors for its high growth prospects and consistent dividends. It is currently trading at P/E and EV/EBITDA of 18.4x and 12.2x, respectively, which we believe is still attractive relative to its earnings growth potential.
Listed on the ACE-market, Rexit is a small and relatively unknown company with a market capitalization of RM113.9 million. It is primarily involved in the provision of web-based solution services to the financial industry. Some of its products include E-cover, E-PPA and InfoGuardian.
E-Cover is an online insurance portal while e-PPA is a software that is used when members withdraw part of their EPF funds to invest in approved unit trust funds. InfoGuardian, on the other hand, is a case document and workflow management solution for corporate firms. Rexit’s clients include Allianz, Tokio Marine, RHB bank, Al-Rajhi bank and various unit trust funds.
Leveraging on its strong customer base, the company registered a strong set of 1QFYJune2016 results. Revenue grew 16.9% y-y to RM4.1 million boosted by higher software sales including subscription and transaction fees. Core pre-tax profit — excluding foreign exchange gain of RM0.3million — jumped 121.3% y-y to RM1.8 million. The increased in margins was due, mainly, to better product mix — the previous corresponding quarter saw higher proportion of low profit margin hardware sales.
Net cash currently stands at RM22.1 million, or 19.4% of its market capitalization. Furthermore, dividend payments have been consistent, since FY2006. For FY2015, dividend totalled 1.5sen, translating into net yield of 2.4% at the current price of 64 sen.
Moving forward, the detariffication of Malaysia’s general insurance is expected to take place in 2016. This will result in a more competitive insurance industry, where insurers will now have the flexibility to design and price their products differently. Management believes the proposed detariffication will underpin future growth as it will create greater overall demand and hence more project opportunities for the company.