This article first appeared in The Edge Malaysia Weekly on September 11, 2017 - September 17, 2017

AFTER Sedania Innovator Bhd registered profits for three consecutive quarters, managing director Datuk Azrin Mohd Noor is confident next year will be a “growth-hiking” year.

The growth will be driven by the technology incubator’s fintech platform, As-Sidq, which is run by Sedania As Salam Capital Sdn Bhd (SASC), which Sedania Innovator acquired from major shareholder Sedania Corp Sdn Bhd last year.

According to Sedania, As-Sidq is a Tawarruq commodity trading system used by financial services companies to process and disburse personal Islamic financing.

By the end of this year, As-Sidq will be able to process other financial products such as hire purchase, mortgages, overdrafts, term loans and credit cards, which will tremendously increase the number of transactions it handles, says Azrin.

“There are a lot more products beyond personal loans that we are going to do, and the platform is patented. The reason why we have spent a little bit on this platform is because we know that there is some amount of pain points for the banking industry in other countries,” he tells The Edge in an exclusive interview.

“We have identified Indonesia and Bangladesh as two countries that we probably want to get into by extending the geographical area of the patent.”

As the number of financial products processed via As-Sidq increases, so will the number of transactions. Clients will be charged fees of up to RM80 per transaction.

When Sedania announced the acquisition of SASC for RM12 million last February, the group said the platform had already handled more than 300,000 transactions involving personal financing products.

On Feb 27, Sedania entered into a share sale agreement with Sedania Corp for the acquisition of two million shares in SASC for RM12 million. Azrin is the owner of Sedania Corp.

The consideration was satisfied by a combination of RM4 million in cash and issuance and allotment of 25.8 million new shares in Sedania at an issue price of 31 sen per share. The acquisition came with a profit guarantee from the seller of RM1.5 million for its financial year ending Dec 31, 2017 (FY2017) and FY2018.

The acquisition of SASC is part of Sedania’s turnaround plan, which includes venturing into four other business verticals alongside its airtime sharing business. This allows the group to hedge its exposure to the telecommunications industry.

The four verticals include Internet of Things (IoT), green technology solutions, big data analytics and fintech. As-Sidq is Sedania’s beachhead in fintech, while its partnership with Cloudera Inc of the US will allow it to provide big data analytics to companies in Malaysia.

Sedania’s wholly-owned subsidiary IDOTTV Sdn Bhd is partnering Matrix Energy Sdn Bhd to provide green technology solutions at 100 sites for five years. They started in Sept 1, 2016. The contract has a value of RM8.4 million.

As for IoT, IDOTTV is partnering Iscada Net Sdn Bhd for the provision of iSNET fire safety portal devices to at least 6,300 buildings identified by the Fire and Safety Department. IDOTTV will be paid RM2,300 per device by Iscada Net, excluding the Goods and Services Tax.

“All of them (verticals) have started to generate profits. The one that is probably taking a little bit more time, not because it is not a high-growth segment, but rather, the readiness of the market, is big data analytics,” Azrin says.

“Everybody wants to use big data analytics, but it takes a little bit of time to educate them to jump on board. Our IoT is already generating profits and so is our greentech, and I am very happy to say our fintech is going to start contributing from 3Q2017 onwards.”

As-Sidq uses telco airtime as the underlying commodity for Islamic personal financing products. The platform is already being used by 21 Islamic financial institutions nationwide. Sedania is expanding the client scope of As-Sidq by including factoring companies and cooperatives.

According to Azrin, As-Sidq addresses the needs of financial institutions by simplifying the processes and eventually reducing the number of staff and days required to process a financial product. This capability allows As-Sidq to be replicated by conventional financial institutions.

Sedania’s experience and partnerships with telcos in providing airtime sharing services allows the company to use airtime as the underlying commodity for Islamic financial products.

“In Islamic financing, you have to have a commodity. So the banks used to use perishable items like milk and onions, which was problematic, and questionable in syariah too. Then they started to use the London Metal Exchange, where values fluctuate and are therefore questionable. So we brought in airtime, which doesn’t fluctuate and is syariah-compliant,” says Azrin whose indirect interest in Sedania rose from 50.09% to 55.79% following the acquisition of SASC.

Profit rates in Islamic financing are based on commodity prices as a benchmark since interest is forbidden.

Azrin says the As-Sidq platform has reduced the number of staff required to process personal financing to just four from 30, and the time required to approve loans to three days from two weeks.

“So the banks found out that not only did the As-Sidq platform meet syariah requirements, but it also made business sense, because we help them save cost and, at the same time, make the platform a little bit more agile and flexible,” he adds.

Sedania reported a net profit of RM261,000 for the second quarter ended June 30, 2017, compared with a net loss of RM842,000 in the corresponding quarter last year. This was the third consecutive quarter Sedania has been in the black. In FY2016, it posted a net loss of RM2.1 million.

Azrin guarantees FY2017 will be a profitable year for Sedania. It is the group’s financial performance next year that its shareholders and investors should watch out for to see the real potential of the As-Sidq platform.

Sedania closed at 33.5 sen last Thursday, giving it a market capitalisation of RM75.6 million.

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