This article first appeared in The Edge Malaysia Weekly on March 6, 2023 - March 12, 2023

INFORMATION and communications technology (ICT) service provider Theta Edge Bhd, a 30%-owned subsidiary of Lembaga Tabung Haji, is believed to be acquiring a 70% stake in Transit Acquirer Sdn Bhd (TASB) from the Ministry of Finance Inc (MoF Inc) for an undisclosed amount, according to people privy to the matter.

TASB is a special-purpose vehicle formed by MoF Inc in 2015 to undertake the integrated common payment system (ICPS) of all the Klang Valley public transport systems operated by Prasarana Malaysia Bhd.

“From my understanding, Theta Edge has been awarded the tender for the 70% stake in TASB,” says an executive of a company who participated in the bid, but failed.

An investor of Theta Edge also confirmed that the company has won the bid for the stake. However, the government still needs time to look at the project before making a decision on whether to continue with the divestment or not, he says.

Theta Edge’s public relations representative did not respond to requests for comment at press time.

In January last year, MoF Inc had invited proposals from qualified private entities to acquire 70% equity interest in TASB.

According to the notice of request for proposal (RFP), TASB will be granted exclusive rights by the government to implement, design, supply, install, operate, manage and maintain the ICPS for all existing and future rail and bus services operated by Prasarana within the Klang Valley. The bid closed on Feb 9, 2022.

The ICPS project had been in the making since 2015. In August 2015, according to news reports, the now defunct Land Public Transport Commission (SPAD) had awarded a US$19.7 million contract to Vix Technology, an Australian company, to design, install, operate and maintain the ICPS.

It was reported that the ICPS will consolidate transit and micro-payments into a transit payments acquiring system and allow users of the country’s public transport system to realise the benefits of using a single integrated smartcard to pay for all their travels. The new system was then expected to roll out as early as 2017.

However, it is not clear what happened to this contract as there is still no integrated payment system where users can just use their debit or credit cards to pay for their public transport fares. The only system that can be used across different modes of public transport is the Touch ‘n Go card.

In February 2022, current Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim had reportedly questioned the government regarding the development of the ICPS, noting that “hundreds of millions of ringgit” had been spent by TASB on the ICPS. He also questioned the RM400 million valuation of TASB based on the tender document.

According to a credit report by CTOS on TASB, the company had two RM200 million charges, charged to Maybank Islamic Bhd, on April 25, 2017.

Another source who put in a bid for the tender says the tender document listed a ridership projection of 100 million per year across the Prasarana-operated public transport system. For each of the riders, TASB will be paid 20 sen. This means that the operator of the ICPS will have a projected revenue of RM20 million a year.

However, the winning bidder will have to fork out RM800 million to implement the ICPS — RM400 million to acquire the stake in TASB and another RM400 million as capital expenditure for the system, says the source.

“So if the ridership projection is just 100 million per year, and TASB will get RM20 million revenue per year, I don’t think it is very lucrative, or even viable, to invest RM800 million,” adds the source.

Nevertheless, according to Prasarana’s average daily ridership forecast of 1.57 million by March 2025, or an annual ridership forecast of 573.05 million, this means that TASB’s revenue could reach RM114.61 million if all of the passengers use the ICPS.

Prasarana also projected an average daily ridership of 1.85 million by 2027, or 675.25 million annual ridership forecast. If this can be achieved, and the ICPS is adopted by all riders, TASB’s revenue could increase to RM135.05 million.

In the financial year ended Dec 31, 2022 (FY2022), Theta Edge returned to the black with a net profit of RM8.07 million after two straight years of losses. The turnaround was partly attributed to higher revenue and margin materialised by the technology and telecommunications ­(telco) segments.

During the year, revenue contribution from the telco segment increased to RM69.4 million, from RM9.4 million in the preceding financial year, due to partial materialisation of newly secured contracts and other existing contracts, the group says.

Theta Edge’s telco unit, Theta Telecoms Sdn Bhd, is expected to continue its growth momentum in line with its appointment as the designated universal service provider for the provision and implementation of the Jalinan Digital Nasional (Jendela) Phase 1 project.

In January 2022, Theta Edge was awarded a contract, whose total project cost will be a maximum of RM154.36 million, to supply, deliver and install the lower structures and its ancillaries for the provision of public cellular services for 221 locations in the universal service targets for 14 clusters.

Theta Edge says it is competitively positioned to capitalise on the recently announced acceleration of the Jendela project, which includes Phase 2.

“In the long run, the group targets to position itself as a key strategic player in the national digital agenda and national rollout of the 4G/5G network developments,” says Theta Edge in the group’s financial results report for 4QFY2022 and FY2022.

Theta Edge shares are up 6.34% over the past year to close at 67 sen last Thursday, giving the group a market capitalisation of RM78.45 million. At that price, Theta Edge is trading at 21.49 times its historical earnings.

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