This article first appeared in The Edge Malaysia Weekly on June 7, 2021 - June 13, 2021

DATASONIC Group Bhd’s new managing director Wan Zalizan Wan Jusoh is transforming it into an “institutionalised” entity as well as diversifying its revenue stream.

Appointed in late February, the ex-banker is trying to get institutional investors to put money into the security and surveillance technology services provider, which has long been labelled as “personality-driven” and “family-run”, and increasing the representation of these funds on the board of directors.

“I came in with one strong objective, which is to institutionalise Datasonic,” says Wan Zalizan in an exclusive interview with The Edge.

For a start, in April, the group completed a private placement exercise involving the issuance of 262 million new shares, representing 10% of its total outstanding shares excluding treasury shares, he says. This increases the percentage of bumiputera shareholders in Datasonic to nearly 38%.

Besides that, Wan Zalizan says, Urusharta Jamaah Sdn Bhd has also been given representation on Datasonic’s board, giving it reassurance of its investment in the company. On May 31, Urusharta head of operations Azrul Yahaya was made a non-independent non-executive director.

Datasonic has been under the spotlight for the wrong reason since the 14th general election. A corruption crackdown launched by the then federal government had implicated Datasonic’s then deputy managing director and major shareholder Chew Ben Ben, who was alleged to have given RM6 million to then deputy prime minister and home affairs minister Datuk Seri Ahmad Zahid Hamidi.

The RM6 million was construed by the public prosecutor as a bribe for Zahid to facilitate the appointment of Datasonic Technologies Sdn Bhd (DTSB) to provide 12.5 million chips for Malaysian passports to the Immigration Department under a five-year contract through direct negotiations at the Ministry of Home Affairs.

However, Chew told the court that the RM6 million was a political donation to Barisan Nasional and that it came from DTSB’s director, Datuk Abu Hanifah Noordin.

Chew, who has a 17.4% stake in Datasonic, resigned as deputy managing director in March this year. His resignation comes on the heels of a corruption proceeding on March 18 involving himself and Pristina Ombak Sdn Bhd, an offshore vessel support company in which he once served as director. Chew has pleaded not guilty.

When asked about getting on board when the group was suffering from perception issues, Wan Zalizan says while the market had reacted in line with the news, he has devised various plans and strategies to encourage the market and institutional investors to consider Datasonic as a long-term investment.

“We are also in discussions and making rounds of presentation to prospective fund managers and institutional investors to provide them with a clearer picture of who we are,” says Wan Zalizan, who has worked at Exim Bank and the Maybank Group.

Among Datasonic’s strengths is its strong orders prospects, he says, adding that he is confident the group will add around RM900 million worth of orders this year, which will be implemented over the next two to five years.

At the moment, Datasonic’s order book stands at around RM420 million.

One tender that Wan Zalizan is very confident of securing is the Foreigner Identity Card, or i-Kad. He believes that Datasonic is ranked first in the i-Kad tender evaluation process, particularly in technical evaluation and assessment. “This is because the technology that we have proposed is the best, leveraging on unique security features that are present in the current MyKads and passports, such as a multipurpose card which is chip-enabled, durable, contactless and of quality material.”

The government is expected to award the RM150 million contract this year.

Due to the Covid-19 pandemic and the closure of borders, many people have not renewed their passports. According to Wan Zalizan, as at end-May, more than three million passports had expired.

This translates into a potential revenue of more than RM200 million for Datasonic once international travel resumes to pre-pandemic levels. “The recent National Vaccination Programme, albeit slower than expected, would definitely lead to the eventual lifting of international travel restrictions.

“We have seen that many countries, especially in the EU and Middle East, as well as our neighbours, have opened their borders to international travellers who have completed their vaccination,” he says. “We anticipate a huge spike in the demand and supply of passports in the third quarter of this year and the group is ever ready to meet the demand, given our proactive production processes.”

Besides the i-Kad and the renewal of passports, Datasonic is also widening its net by participating in the recent Jalinan Digital Negara (Jendela) Initiative Phase 1, which involves the rollout of 4G spectrum at 106 clusters or 1,661 underserved locations nationwide. Datasonic is bidding for the construction of telco towers in 35 clusters involving 573 sites, which have an estimated revenue potential of RM560 million.

In January, Datasonic lost the much-coveted National Integrated Immigration System (NIISe) to Iris Corp Bhd. According to Wan Zalizan, Datasonic lost the tender because its bid cost around RM100 million more than Iris’.

He says Datasonic had proposed a full-fledged automated biometric identification system (ABIS) at all immigration entry and exit points, adding that the concept would lift the nation’s border security and surveillance system to a new quantum level. However, the enhanced security feature comes at an additional cost due to the hardware and software requirements, making Datasonic’s bid less competitive from the pricing point of view, he explains.

Wan Zalizan plans to diversify Datasonic’s revenue stream. Presently, the top-line revenue is close to 100% contributed by the government segment through the various contracts relating to MyKad, passports and autogates.

According to him, the plan is to diversify the group’s revenue stream to bring in contribution from the non-government segment to at least 20% in the next one to two years. One of the opportunities available is the Digital Economy Blueprint, he says. “Our immediate strategic focus shall be on getting ourselves into the sphere of B2B and B2C platforms. We believe that these platforms are more lucrative and sustainable, in addition to having lower operating costs.

“For this, we are currently undertaking in-depth studies in the digital financial services segment, which includes e-wallet, payment services and remittances. This could be achieved through either organic growth or via strategic collaboration with the players in the market,” he says.

Additionally, Datasonic is also looking to secure the contract for the development of the National Digital Identity (NDI), says Wan Zalizan. The contract is valued at around RM350 million.

Due to its expertise in cutting-edge identification document as well as security and surveillance, Datasonic is confident of securing the project, he says. Leveraging on these strong credentials (being an expert in security documents), we believe that Datasonic will be the preferred solution provider in support of the government’s digital transformation programme, especially the development of the NDI,” he says.

Datasonic is covered only by RHB Research Institute, which has a “buy” call on the stock. In a report issued last Thursday, RHB Research analyst Lee Meng Horng maintained the call and gave the stock a target price of 57 sen per share, which represents around 11% upside and 3% yield.

Lee expects a remarkable V-shaped earnings recovery for Datasonic on the pent-up demand for passports upon the rollout of vaccines and eventual relaxation of international borders. This is supported by its RM450 million outstanding order book.

For its financial year ended March 31, 2021 (FY2021), Datasonic saw net profit slump to RM7.3 million from RM60.322 million in FY2020 as revenue from the supply of passports, maintenance and personalisation services took a hit.

Datasonic closed at 51.5 sen last Friday,  giving it a valuation of  RM1.53 billion.

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