Update Report 25 March 2010 PP7084/11/2006 Strictly for internal circulation only Rexit Berhad SJ Securities Sdn. Bhd. Buy Fair Value RM0.65 (+25.0%) Stock Data Price (RM) 0.52 Stock code 0106 Bloomberg Ticker REXI MK Listing Main Share Cap (RM mn) 18.93 Market Cap (RM mn) 98.45 Par value (RM) 0.10 52-wk high (RM) 0.92 52-wk low (RM) 0.45 Major shareholders:- Rexit Venture Sdn Bhd T Rowe Price HSBC Holdings 37.7% 7.7% 5.6% Financial Data Trailing PER (x) 14.09 BV per share (RM) 0.19 P/BV (x) 2.78 ROE (%) 21.97 Beta (x) 1.04 Altman Z Score 11.42 Dividend yield (%) 6.73 Relative Performance (%) 1-month -14.75 3-month -19.66 6-month -22.56 12-month -32.25 YTD -12.34 Our reports are available for download on SJenie website as stated below. SJ Securities Sdn Bhd A Participating Organisation of Bursa Malaysia Securities Bhd www.sjsec.com.my Tel: 603-5634 0202 Fax: 603-56376811 Investment Highlights We have recently arranged a meeting with the management team of Rexit. Below are the key takes from the interview: Recurring revenue model. Rexit builds and leases its software to many insurance companies as well as government organizations. Besides that, Rexit also charge a fee per transaction on data that flows thorough its e- cover website. One of its lucrative segments would be the annual car insurance renewals which basically net the group RM 0.50 per car per renewal. On top of that, the transfer of insurance policies on second hand cars also provides a constant flow of income to the group year in year out. Collaboration with EPF and FIMM. Rexit was the only company appointed by EPF to work out with Federation of Investment Managers of Malaysia (FIMM). This would allow the Malaysian public to purchase unit trusts with their EPF account online. Though, the group takes a small percentage of the value of the transaction, the sheer size of the transaction is sufficient to generate million in ringgit annually. We believe the group stands a good chance to be given extended contracts to provide information transaction services over the internet into other areas related to EPF accounts. The collaboration with FIMM has also turned out to be fruitful as Rexit s e- cover has managed to reduce the processing time of unit trusts transaction from 90 days to a short 7 days. direct competitors. While one may doubt the low profit margin in the car insurance renewal business due to cut throat competition between MY EG and Rexit, we disagree as they are operating in a totally different area. Their business models are different from each other. MY EG offers a direct service to the consumers; on the other hand, Rexit offer its e cover service to the agents. Many insurance companies chose to use e cover rather than offering a direct portal to consumers. This is because whenever consumer wants to claim under any insurance policies, the agent will be acting on behalf of the insurance companies to liaise directly with the consumer and key in the data using e cover, reducing a lot of hassle on the insurance companies side. International expansion. Rexit International is expected to start to contribute more significantly to the group s overall financial performance. The group is committed to offer good customer service to its clients,
slowly building up its customer base overtime. Rexit Hong Kong has break even in the most recent quarter, and is expected to make a profit in 2010. Recommendation. We give a fair value RM 0.65 on Rexit s share which is 3.25 times its book value per share. The figure for its book value per share is a very conservative figure as almost all of the assets are tangible assets. The group does not capitalize the software it leases out, which we believe the current price does not reflect the inherent revenue generation ability of those intangible assets in the next few years. Results comparison FYE 30th Jun 2Q FY09 1Q FY10 2Q FY10 Q-o-Q Y-o-Y Unit % % Revenue RM mn 5.7 3.8 4.2 10.5 (26.3) Direct Cost RM mn (2.4) (1.5) (1.7) 13.3 (30.0) Gross Profit RM mn 3.3 2.4 2.4 (1.7) (28.5) Other Income RM mn 0.2 0.2 0.4 100.0 110.5 Admin expense RM mn (1.5) (1.4) (1.4) (2.9) (9.3) Profit from associated co. RM mn 0.0 0.0 0.0 0.0 Na Profit Before Tax RM mn 2.0 1.2 1.4 16.7 (29.6) Taxation RM mn 0.0 0.0 0.0 Na Na Minority interest RM mn (0.5) (0.3) (0.2) (33.3) (60.0) PATMI RM mn 1.5 0.9 1.2 33.3 (19.5) EPS sen 0.8 0.8 0.9 17.5 17.5 Margins % Operating margin % 57.9 63.2 56.2 (11.0) (2.9) PBT margin % 34.9 31.6 33.3 5.6 (4.5) Net margin % 26.1 23.7 28.6 20.6 9.3 Cumulative results comparison FYE 30th Jun 2Q FY09 2Q FY10 Y-o-Y Unit % Revenue RM mn 10.0 8.0 (20.0) Direct Cost RM mn (4.3) (3.2) (25.6) Gross Profit RM mn 5.7 4.8 (15.8) Other Income RM mn 0.4 0.6 50.0 Admin expense RM mn (2.6) (2.8) 7.7 Profit from associated co. RM mn 0.1 0.0 (100.0) Profit Before Tax RM mn 3.6 2.6 (27.0) Taxation RM mn 0.0 0.0 0.0 Minority interest RM mn (0.4) (0.5) 25.0 PATMI RM mn 3.2 2.1 (33.5) EPS sen 1.7 1.7 2.4 Margins % Gross margin % 57.00 60.00 5.3 PBT margin % 35.60 32.50 (8.7) Net margin % 31.60 26.25 (16.9) 2
Financial Highlight P&L FYE 30th Jun 2007 2008 2009 2010F Units Revenue RM (mn) 20.9 24.0 19.4 20.1 EBITDA RM (mn) 9.0 9.5 6.9 7.0 Profit before Tax RM (mn) 9.2 9.7 7.0 7.0 Taxation RM (mn) -0.1-0.3-0.2-0.3 Minority interest RM (mn) 0.2 0.1 0.1 0.6 PATMI RM (mn) 9.2 9.5 6.9 7.0 EPS sen 4.9 5.0 3.7 3.8 DPS sen 2.5 3.5 3.5 3.0 Growth % 2,007.0 2,008.0 2,009.0 2010F Revenue % 17.8 14.8-19.2 3.6 PBT % 37.4 5.4-27.8 0.0 PATMI % 40.0 3.3-27.4 1.4 Margins % 2,007.0 2,008.0 2,009.0 2010F PBT Margin % 43.8 40.4 36.1 34.8 Net Margin % 44.2 39.6 35.6 34.8 Per Share Data 2007 2008 2009 2010F Units Book Value RM 0.2 0.2 0.2 0.2 NTA RM 0.2 0.2 0.2 0.2 Cash Flow sen 4.0 5.7 19.4 19.4 Basic EPS sen 4.9 5.0 3.7 3.8 Gross DPS sen 2.5 3.5 3.5 3.0 Payout ratio % 51.2 70.0 94.5 78.9 PER x 54.0 21.4 14.6 15.8 P/Cash Flow x 65.4 18.9 2.8 3.2 P/Book Value x 14.3 5.4 2.7 3.0 Dividend yield % 0.9 3.3 5.9 5.0 ROE % 4.7 25.2 3.6 3.7 Net Gearing % net cash net cash net cash net cash 3
Constituent of Indices FBM KLCI FTSE Bursa Malaysia Large 30 Index FTSE Bursa Malaysia Mid 70 Index FTSE Bursa Malaysia EMAS Shariah Index Share Performance Source: Bloomberg 4
Disclaimer The information contained in this report is based on data obtained from sources believed to be reliable. However, the accuracy, adequacy, reliability or completeness of the information provided herein is not guaranteed and opinions are subject to change without notice. This report has been prepared for information purposes only and should not be construed as a solicitation for contracts. Any recommendation made does not take into account the specific investment objectives and any particular needs of investors. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors or employees may have an interest in the securities and/or companies mentioned herein. This report has been prepared by SJ Securities Sdn Bhd for purposes of CMDF-Bursa Research Scheme ("CBRS") administered by Bursa Malaysia Berhad and has been compensated to undertake the scheme. SJ Securities Sdn Bhd has produced this report independent of any influence from CBRS or the subject company. For more information about CBRS and other research reports, please visit Bursa Malaysia s website at: http://www.bursamalaysia.com/website/bm/listed_companies/cmdf_bursa_research_scheme/ Stock rating definitions Buy The stock is expected to perform positively. Expected return including both capital appreciation and dividends is expected to exceed 15% over 12 months. Hold The stock is expected to stay sidelined. Expected return including both capital appreciation and dividends is expected to range between negative 5% to positive 15% over 12 months. Sell The stock is expected to perform negatively. Expected return including both capital appreciation and dividends is expected to be negative 5% or lower over 12 months. t Rated The stock is not under research coverage and the reports serves for purely informational purposes only. Trading Buy The stock is expected to be volatile while providing for near term positive trading opportunities. This is under the high risk category with near term catalysts. 5