Saturday 13 Apr 2024
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This article first appeared in The Edge Malaysia Weekly on November 6, 2023 - November 12, 2023

AwanBiru Technology Bhd (Awantec), which has been categorised as an “affected listed issuer” by Bursa Malaysia after it lost a major partnership deal in January 2021, has been picking up the pieces and getting back on its feet.

The company’s main source of income had been its partnership with Microsoft, which made Awantec’s subsidiary Prestariang System Sdn Bhd the sole Microsoft Licensing Solutions Provider for all government agencies and public training institutes in the country. The contract to provide Microsoft solutions generated 90% of Awantec’s revenue back then.

“[The partnership with] Microsoft constituted around 90% of our business then, and losing the licence led to us being [categorised as] an affected listed issuer by Bursa Malaysia,” says Awantec CEO Azlan Zainal Abidin, when met at the group’s office in Cyberjaya.

The termination of the Microsoft partnership pushed Awantec into financial troubles. It was a painful lesson on the risks of having high client concentration.

Awantec has since embarked on a business transformation plan and is looking for fresh opportunities. The company has partnered with Google to provide cloud services and Skillsoft to offer e-learning services.

“If you look at our core businesses today, we actually have RM40 million in revenue, as reported in the last financial year. And that comes from the two core businesses,” says Azlan.

“If you look at our balance sheet as well, we are quite strong. Our borrowings have reduced tremendously.”

The company’s total borrowings amounted to RM14.3 million as at June 30 compared with RM24.29 million two years ago.

The partnership with Google allows Awantec to be part of the government’s cloud framework agreement (CFA) signed in May 2022. The CFA is one of the main thrusts to drive the digital transformation of the public sector, especially by utilising the cloud network.

Awantec’s subsidiary Awantec System Sdn Bhd is the managed service provider (MSP) for Google Cloud under the CFA. In August 2021, Awantec System was elevated to Google’s Premier Level Partner in Malaysia.

Awantec is already serving about 400,000 civil servants through Google Workspace productivity tools and students using the Google Classroom application.

However, the company was still in the red as at June 30, 2023 (FY2023). During the year, the group made a net loss of RM6.25 million on revenue of RM39.81 million, which was 56% lower than the RM90.26 million in FY2022.

The plunge in revenue was due to the software and services segment bringing in only RM23.8 million during the year, compared with RM76.1 million in FY2022, due to the higher revenue recognition from PERNEC Corp Bhd and the Ministry of Education projects in the preceding year.

PERNEC is a telecommunications infrastructure and information and communication technology company. It is the contractor that implements the MyGovUC 2.0, an integrated communication and collaborative service managed centrally at the Malaysian Administrative Modernisation and Management Planning Unit (Mampu).

Despite the lower revenue, the software and services segment achieved a higher profit margin in FY2023 due to an increase in contribution from the additional services. These jobs typically fetch higher gross margins than the licensing business.

“The services jobs bring in typically between 25% and 30% of margins at the gross profit level. This is higher than the licensing and subscription charges, which typically bring low double-digit margins at the gross profit level,” says Azlan, who was appointed CEO four months ago.

For Awantec to be sustainable, it needs more higher-margin projects, as well as to diversify its clientele, so as to reduce its dependence on public contracts.

Azlan has set up three teams to grow the business — the public sector, commercial and small and medium enterprises (SMEs). He says Awantec has set a target to have 30% of its business coming from non-government contracts by the financial year ending June 30, 2025 (FY2025).

It will have to grow its non-government business fast. This may not be an easy feat given that serving the public sector has been its core activity in the past, plus the fact that the company is winning public jobs again. Still, it is an essential move given the lesson it has learnt.

There are more requests for information (RFI) and requests for proposals (RFPs) by government agencies and ministries for the implementation of cloud network platforms and applications. This indicates more job opportunities for companies like Awantec.

For instance, Bank Negara Malaysia issued an RFI to provide digital enablement services for the Consumer Credit Oversight Board (CCOB) in June.

While Azlan did not divulge which RFIs and RFPs that Awantec had participated in, the RFI for the CCOB seems to be one that the group would have been interested in. That is because not only does the RFI require the bidder to provide cloud technology to meet the CCOB’s operational demands, as well as host its business applications, it also seeks a solution that is able to be enhanced with analytics and insight capabilities.

Data analytics and custom developments are the kind of additional services that bring in higher margins for Awantec. It is not clear whether Bank Negara had called for an RFP for the CCOB digital enablement project.

Meanwhile, in the talent segment, Awantec is leveraging its partnership with Skillsoft to offer e-learning and talent development services to companies that contribute to the Human Resources Development Corp (HRDC) fund. Besides HRDC funded programmes, Jabatan Perkhidmatan Awam Negeri Sabah, the Ministry of Education and Malaysia Airports Holdings Bhd are also clients that use Skillsoft courses, which are implemented by Awantec.

In FY2023 ended June 30, the talent segment reported revenue growth of 17.7% year on year to RM16.6 million, mainly due to the higher number of placements under the Selangor Kerjaya Programme. As a result of the higher revenue, this segment recorded higher profit before tax (PBT) of RM1.4 million in FY2023 compared with a PBT of RM1 million in FY2022, the group stated in its financial results announcement.

With the gradual implementation of the CFA by the government, Azlan is confident that Awantec will turn around in FY2024, with its revenue expected to increase by a double-digit percentage. “We are definitely going to be profitable in FY2024,” he says.

Still keen to participate in NIISe

Asked about the new integrated immigration system, Azlan says Awantec is keen to participate in the massive project, which existing e-government service providers and new players are eyeing.

“Definitely, it is a big national initiative. We would like to contribute to the government, based on what capabilities we have then. We could come in as a cloud player, data analytics, or at the prime level as the contractor,” he says.

Awantec, then known as Prestariang, was granted the RM3.5 billion Sistem Kawalan Imigresen Negara (SKIN) project in August 2017. It was a concession to design and manage the country’s new immigration control system, replacing the 22-year-old Malaysian Immigration System (MyIMMs).

The 15-year concession involved a three-year build and deployment phase and a 12-year maintenance and technical operation phase. Under the agreement, payment by the government to Prestariang SKIN was to commence upon full commissioning of the system, with an average annual payment of RM294.7 million.

However, the Pakatan Harapan government terminated the concession in January 2019 by way of expropriation on the grounds of national and public interest. The company then filed a legal claim against the government for the works done, worth RM732.86 million, in April 2019. The trial started in April 2021 and is ongoing.

When Perikatan Nasional took over Putrajaya, it launched the National Integrated Immigration System (NIISe) project to replace MyIMMs. The project was later awarded to IRIS Information Technology System Sdn Bhd (IITS), a subsidiary of IRIS Corp Bhd, in May 2022 after another change in government.

The NIISe contract was valued at RM1.13 billion, and was not a concession. Unlike the SKIN concession, the project would be funded by the government with its development expenditure.

Then in February 2023, less than a year after it got the contract, IRIS announced that it was selling 80% equity interest in IITS for RM70 million to Tass Tech Technologies Sdn Bhd, an IT company owned by Tass Tech (M) Sdn Bhd. According to the Companies Commission of Malaysia, Tass Tech is 70%-owned by one Shukor Ahmed while the remaining is owned by its CEO Raja Muhammad Badiuzzaman Raja Chulan.

The Ministry of Home Affairs under Datuk Seri Saifuddin Nasution Ismail terminated the contract in August. Prior to the termination, Saifuddin said that as at March 2023, IRIS had not reached the desired level of progress, as the project had to be completed by August 2024.

Meanwhile, following the termination of the contract, IRIS said its subsidiary IITS is committed to protecting its interests and has resolved to take all necessary actions to exercise its legal rights. The group maintains that the termination is invalid and unlawful.

Given the slew of events that have taken place, it remains to be seen how the current government will implement the integrated immigration system project. 

 

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