This article first appeared in The Edge Malaysia Weekly, on October 12 - 18, 2015.

THE Immigration Department could be a reservoir of contracts for information and communications technology (ICT) companies.

According to sources, the contracts to supply the department with passport booklets and smart chips are expiring in a few months while its entire IT system is overdue for a massive revamp.

Datasonic Group Bhd, which is the supplier of the polycarbonate datapage on which passport holders’ personally identifiable information is printed, is said to be vying for the passport booklet and smart chip contracts. If it is successful, the company will be the supplier of the entire passport issued to Malaysians by the Immigration Department.

Datasonic’s proposal to the Immigration Department was to integrate a smart chip into the polycarbonate datapage — a design that would be compliant with the latest international security standards. At present, the chip is embedded in the back cover of the passport.

According to sources, the contracts could be worth about RM500 million and be for a period of five years. It is understood that the outcome of the bids for the contracts could be announced as soon as this month.

Whether Datasonic (fundamental: 1.70; valuation: 0.50) is able to wrest the contracts from Iris Corp Bhd (fundamental: 0.35; valuation: 0.90) and Percetakan Keselamatan Nasional Sdn Bhd (PKN) has yet to be seen. Some quarters say it could be a “tough fight” as PKN has been the supplier of the passport booklets for over 20 years now while Iris Corp is not a newcomer to the provision of passport chips. It is worth noting that Iris Corp is also the supplier of the auto-gate system at the Kuala Lumpur International Airport.

Currently, Iris Crop supplies PKN with the smart chips while the latter carries out the final step of inserting the chips and the datapages supplied by Datasonic into the passport booklets.  

PKN is 60.9% owned by Kumpulan Fima Bhd (fundamental: 2.50; valuation: 2.40).

Iris Corp’s contract for the smart chips ends sometime in the middle of 2016, and according to sources, the company, together with PKN, has submitted a proposal for its renewal.

Industry experts say that on average, the government issues about 2.5 million passports a year — about 500,000 more than four years ago. The increasing number is due partly to the fact that cheap airfares offered by low-cost carriers have made travelling abroad more affordable.

Datasonic itself was awarded a RM284.7 million contract to supply the polycarbonate datapages for Malaysian passports, which expires on Feb 28, 2018. “It makes sense to us for the group [Datasonic] to aspire to be a one-stop security solutions provider as evidenced by its current provision of a full set of solutions for MyKad,” says RHB Research in a Sept 10 report.

The company’s share price reversed its downward trend recently after having fallen from a peak of RM2.37 in April last year to a low of RM1 this year. The spike in buying interest lifted the share price to a year-to-date high of RM1.56 on Oct 5.

The sharp fall in the share price could have been due to the ICT solutions company lacking new contracts that excited investors after 2014, when it managed to renew its contract to supply 10 million new polycarbonate myKad to the National Registration Department (NRD).  

RHB Research, the only research house that tracks Datasonic, has pegged the target price for the company at RM1.22, which translates into a price-earnings ratio of 25 times based on forecast earnings for the financial year ending March 31, 2016 (FY2016). It downgraded its call on the stock from a “buy” to a “neutral” in September.  

“While we continue to like Datasonic’s unique status as a national security solutions provider, we believe the stock is perfectly priced for now,” RHB Research says in the report.

“Key re-rating catalysts include the extension of its existing MyKad and passport contracts, and potential new job wins within its core strength and national security space focus.”

Nevertheless, the earnings of the ICT solutions company are lumpy. Net profit for the first quarter ended June 30 plunged to RM12.36 million, or 0.92 sen per share, from RM27.7 million, or 2.05 sen, a year ago. Revenue declined to RM54.36 million from RM71.56 million in the previous year because of fewer orders for MyKad and passports from NRD and the Immigration Department. Most of the revenue is derived from the supply of MyKad and its consumables and polycarbonate datapages for Malaysian passports.

Datasonic changed its financial year-end to March 31 from Dec 31. In FY2015 ended March 31, it posted a net profit of RM71.9 million on revenue of RM285.17 million.

Datasonic’s largest shareholder is managing director Datuk Abu Hanifah Noordin, who holds a 37.34% stake in the company through his interest in Dibena Enterprise Sdn Bhd and Gerbang Subur Sdn Bhd. Its second largest shareholder is deputy managing director Chew Ben Ben with a 24.04% stake.

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