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Rexit (0106) is a technology stock listed in ACE market. Business of Rexit is to provide IT services to insurance and finance industry. At share price of RM0.90 at time of writing, Rexit has a dividend yield of around 4%. Financial performance of Rexit has been quite impressive, with already six year of consecutive growth. Even in 2020, COVID-19 pandemic does not seem to have any impact on its business. Let’s have a look.

Background of Rexit

Rexit was initially found in 1998. In 2003, Datuk Chung Hon Cheong (current CEO) and Si Tho Yoke Meng (current COO) acquired Rexit. Subsequently in 2005, company was listed on ACE market of Bursa. Datuk Chung Hon Cheong and Si Tho Yoke Meng are not only CEO and COO, they are also biggest shareholders of the company. Two of them in combination holds about 40% of company’s shares.

As of 2020, it still remains at ACE market with around RM170 million of market capitalization.

Rexit is basically an IT company, providing services and solution to finance and general insurance industry.

Business model and products of Rexit

Main strategy of Rexit is acting as “Software as a Service (SaaS)” partner to their client. Under the scheme, it is not required for their clients to pay for upfront cost to develop the software, and subsequently upgrading / maintenance cost. Instead of charging client a lump sum upfront, the IT products will generate recurring income as clients use their products.

Below are three main products of Rexit

1. e-Cover
2. e-PPA
3. InforGuardian

1. e-Cover, which should be the number one revenue generating product of the company. e-Cover is a web-based solution to allow insurance agents to enter transaction online. e-Cover is used for general insurance industry (i.e. motor and fire insurance). Under the “Software as Service (SaaS)” concept, its charges to client is based on “pay per use” basis.

Besides insurance transaction, e-Cover also provides electronic link between insurance companies and Malaysia Road Transport Department (“JPJ”) so that insurance cover notes will be transmitted online between insurance companies and JPJ.

On top of that, Rexit also developed and operates mySalam portal. For information, mySalam national health protection scheme was launched by government in 2019 to provide free Takaful health protection to B40 income group in Malaysia.

It is also worthwhile to note that e-Cover product is not only used in Malaysia only, but also Thailand, Singapore, China and Hong Kong.

2. e-PPA. This is another product under SaaS model following appointment by Federation of Investment Managers Malaysia (“FIMM”), but it is also used by non-FIMM member companies. Function of e-PPA platform is to enable investment and redemption of unit trusts using EPF member’s contribution.

3. InfoGuardian, another SaaS product used by banks with their panel of legal firms and property valuation firms. This system facilitate and online information sharing environment for multiple users within and outside bank organization.

In case you are interested to know what clients are using their products, this information is available on Rexit website here.

Business Prospect

Being a company that provides IT solution to help their clients to streamline and digitalize their operation, Rexit should be in a good position to benefit from e-commerce trend. Especially with their “pay per use” model, their revenue can grow in tandem with business of their clients, such as general insurance, mySalam etc.

On the other hand, in my opinion their strategy the best for (i) small to medium players in financial and insurance industry (ii) niche application (such as mySalam). Large companies are probably have better capability and make more sense financially to build and manage IT infrastructure on their own instead of outsourcing to a third party. This is in line with what management mentioned in annual report of 2019 “continuing consolidation of the local insurance industry presents a challenging operating landscape for the company”. So how management is able to position company and react to changing insurance and financial business environment is very important for future of the company.

Financial

Net cash company

Due to its business nature, it is not required for Rexit to invest heavily in PPE (property, plant and equipment). As a result, Rexit is net cash company with zero borrowing. It has RM19 million of cash on hand (10 cent of net cash per share), plus another RM18 million of investment in equity instruments (9.5 cent per share).

Dividend payout

Rexit does not have dividend policy but has been consistently distributing dividend every year. Below is past record of dividend payout of Rexit.

• FY 2017, 2.0 cent (71% dividend payout)
• FY 2018, 2.0 cent (68% dividend payout)
• FY 2019, 3.0 cent (68% dividend payout)
• FY 2020, 3.0 cent (55% dividend payout)
• FY 2021, 4.0 cent

Credit risk

Following implementation of MFRS 9, ECL model should be used to measure impairment loss of financial assets. However looking at ageing analysis of trade receivable, company has quite a large portion of due but not impaired receivable, account for almost half of total trade receivable. The large portion of trade receivable happened since FY 2019. Since no impairment loss has been allowed for in the current financial statement, I think this is one point that investors should keep an eye on in the coming financial reports.

Extended reading: MFRS update summary

Extended reading: Impairment and expected credit loss (ECL)

Profit margin and ROE

With its ROE above 20%, plus gross margin consistently above 70% and net margin consistently above 30%, I would say the past records show that management is doing a very good job on the business. Also I always deem high profit margin as one of the signs of having an economic moat.

	Gross margin	Net margin
FY 2016	73.8%	36.4%
FY 2017	73.7%	35.4%
FY 2018	73.7%	36.0%
FY 2019	71.7%	34.7%
FY 2020	72.9%	37.3%
FY 2021 Q1	73.0%	40.3%

Financial highlights (Quarterly Report of 2020 Q3 / FY2021 Q1)

• Due to reduction in both direct costs and administrative expenses, compared to same quarter in the previous year, net profit has an impressive 24% improvement on the back of 6% revenue growth.

• Compared to immediate preceding quarter however, both revenue and net profit are lower, by 8% and 19% respectively.

End

Based on past records, I think Rexit is a good company. When this company first gained my interest, the share price was around RM0.5 to RM0.6. With its current share price of around RM0.90, the corresponding PE is around 17. At current price and PE, I would want to estimate safety margin more carefully and do more homework on earning growth potential before making any investment decision.

In case you want to know more about dividend investing, feel free to check out my article about ultimate guideline for dividend investing here.

Disclaimer: This article is purely my notes from studying this company. This is not a BUY or SELL call. I am not a registered investment advisor nor an investment guru, please be reminded to do your own homework and invest at your own risk.