This article first appeared in The Edge Malaysia Weekly on February 5, 2018 - February 11, 2018

DAGANG NeXchange Bhd (DNeX) is looking to replicate its National Single Window (NSW) for trade facilitation in Asia-Pacific and Africa.

Towards this end, talks have been ongoing and DNeX is expected to take part in some of the tenders.

“I think we are prepared for that (expansion to Asia-Pacific and Africa). That is our plan for this year,” says executive deputy chairman Datuk Samsul Husin in an exclusive interview with The Edge.

“I think it’s time for us to go abroad. We have accumulated experience in the last 25 to 27 years and this is our product — which we developed with our people — and we have the infrastructure ready. It’s not an easy application to build as it involves a lot of stakeholders in the trade community. It’s high time for us to try to sell our expertise and compete with the best out there.”

The NSW entails the facilitation of electronic Customs-related transactions and duty payments, and electronic document transfers among manufacturers, importers, exporters, forwarders, shipping agents, terminal and port operators, banks, port authorities and permit-issuing agencies, among others.

DNeX has been the operator of the NSW since its launch in 2009, and has thus far received a couple of extensions to this concession, initially for two years — from Sept 25, 2016, to Sept 24, 2018 — and more recently, to Aug 31, 2019.

“The barrier to entry [for the NSW business] is capital and knowledge. But being in the space for the last 25 years, not many [competitors] have the pool of people that understand the industry. It’s not just about technology but also about building a relationship with the stakeholders of the NSW. There are so many associations, shipping companies and so on, so that is our value,” says Samsul.

NSW is DNeX’s main profit generator. The company’s IT arm provides NSW and other IT offerings such as vehicle entry permits and road charges, ework permits and 1Trade. DNeX also has an energy arm, which has, among others, oil exploration and other related oil and gas businesses with companies such as Ping Petroleum Ltd and OGPC Sdn Bhd.

For its nine months ended September 2017, DNeX posted a net profit of RM41.92 million on the back of RM142.43 million in revenue. According to its notes to the financials, the IT segment generated 72.51% of profit before tax.

Other than venturing abroad, DNeX has been looking to hedge its bets, being less dependent on the local NSW concession.

Among the initiatives being undertaken is a proposed acquisition last week of a 51% stake in Genaxis Group Sdn Bhd for RM10 million. Genaxis’ latest financials are not available, but its 60% unit and jewel in the crown, Innovation Associates Consulting Sdn Bhd (IAC), has been performing well. For its financial year ended December 2016, IAC raked in RM1.98 million from RM54.45 million in sales.

Samsul says there are profit guarantees in place and more information will be divulged when the acquisition is concluded.

“IAC has projects [such as] GFMAS (Government Financial and Accounting Management System), which is the accrual accounting system for the Malaysian government. They (IAC) are one of the first in the world to try to do accrual accounting for the government. This project means a lot and there is a lot of potential. All the experience they (IAC) have gathered in the past more than 10 years in the market ... so they are looking to take on bigger projects not only in Malaysia but also in the region,” he explains.

As at end-September 2017, DNeX had cash and cash equivalents of RM70.79 million and secured long-term bank borrowings of RM17.50 million. For the nine months ended September 2017, it incurred finance costs of a mere RM441,000.

In a research report released on Dec 22 last year, CIMB Investment Bank Bhd had an “add” call on DNeX, with a target price of 74 sen, which is a 54.1% premium to its closing price of 48 sen last Thursday. Its market capitalisation stood at RM842.6 million.

CIMB says, “The extension of the NSW concession and higher crude oil prices are potential re-rating catalysts for the stock. Key downside risks to our ‘add’ call are lower crude oil prices and a decline in NSW transaction volume post-expiry of its concession in September 2019.”

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