This article first appeared in The Edge Malaysia Weekly on December 12, 2022 - December 18, 2022

DATUK Abu Hanifah Noordin’s return to the board of Datasonic Group Bhd and as one of its major shareholders comes with the objective of restoring the company on its growth path after a battering by the Covid-19 pandemic.

Newly minted executive chairman, Hanifah, 71, wants to ensure that Datasonic’s core business of producing security and identity documents remains intact while it looks to diversify into other businesses such as healthcare facilities management and the metaverse.

Hanifah tells The Edge during a meet and greet lunch that he wants to ensure that his legacy as the founder of Datasonic remains. He also wants to resume its growth after two years of being hammered by the pandemic.

“We want to get Datasonic’s growth back on track. We actually wanted to do this earlier, but the dissolution of parliament (on Oct 10) and the subsequent 15th general election (on Nov 19) meant that our plans had to be put on hold,” says Hanifah.

He first returned to Datasonic in June after his wife Datin Popi Riandani Dody Muchtar transferred 103.15 million shares to their son Harrizal Rizhan Abu Hanifah. On June 30, Datasonic announced that Hanifah had 5.59% in direct and indirect stakes in the company.

On July 29, Harrizal transferred the 103.15 million shares to his father and Popi Riandani transferred 33.6 million shares to her husband. Hanifah then also acquired 400,000 shares from Popi Riandani on the same day. These transactions gave Hanifah a direct stake of 6.62% and an indirect stake of 0.22%.

On Sept 14, Hanifah returned to the board as deputy executive chairman before being redesignated as executive chairman on Sept 29.

Hanifah is not alone. He has enlisted the help of several prominent figures in the security and government sectors to put Datasonic on a growth track and ensure that the government of the day is confident of its ability to produce security and identity documents.

On Sept 14, Datuk Mohd Khalil Kader Mohd was appointed as an independent, non-executive director. He was Johor police chief between August 2017 and June 2019 and subsequently became the director of the Narcotics Crime Investigation Department of the Royal Malaysia Police. He retired from the force in February 2020.

Perhaps the most notable board appointment was that of former inspector-general of police Tan Sri Khalid Abu Bakar on Sept 29 as an independent, non-executive director. Khalid was the IGP from May 2013 to September 2017.

As the producer of security and identity documents such as MyKad and passports, Datasonic can tap Khalil’s and Khalid’s expertise and experience. Their understanding of the needs and challenges of producing security and identity documents will give Datasonic an edge when it comes to securing new contracts from the Ministry of Home Affairs and other departments and ministries.

However, Hanifah’s return means that there are no more positions for previous captains. On Sept 14, then non-executive chairman Gen (R) Tun Dr Mohamed Hashim Mohd Ali resigned while then managing director Wan Zalizan Wan Jusoh was redesignated as executive director. On Sept 29, Wan Zalizan resigned from the board, citing his disagreement with the board over his redesignation.

A source close to Datasonic tells The Edge that the board sees Wan Zalizan as having failed in his plan to “institutionalise” the group. The impact of the pandemic, which slashed the demand for passports, also did not help his cause. “Wan Zalizan was tasked with institutionalising Datasonic so the group is moved away from being personality-driven. However, throughout his tenure he could not achieve this, and the board felt that it was better for him to step aside and serve as an executive director.”

He points out that the only major institutional investor in Datasonic is Urusharta Jamaah Sdn Bhd and that was a legacy from the stake held by Lembaga Tabung Haji. Urusharta Jamaah holds a 9.13% stake in Datasonic, making it the single largest shareholder of the group.

Wan Zalizan did not immediately respond to The Edge’s request for comment.

However, Wan Zalizan’s contribution to stabilising Datasonic cannot be ignored. During his tenure as MD, he was calm and collected when Hanifah and his partner Chew Ben Ben were implicated in a corruption case involving the then deputy prime minister Datuk Seri Ahmad Zahid Hamidi.

The attacks on Datasonic at that time were relentless, especially in the blogosphere, as the group was accused of getting lucrative passport contracts just because of Hanifah and Chew’s relationship with Zahid.

Zahid was the home minister between May 2013 and May 2018, during which time Datasonic received many contracts from the ministry.

Hanifah makes it clear that Datasonic got the contract to supply chips for passports in 2015 and that a RM6 million cheque was given to Zahid in 2017 for preparations for the 14th general election (GE14).

He maintains that the cheque was a political contribution to Umno and Barisan Nasional, and not a kickback for securing the contract from the home ministry. He also stressed that Datasonic is the only company in Malaysia that can provide end-to-end solutions for security and identity documents. The Malaysian passports that Datasonic produces are becoming increasingly sophisticated, with advanced security features.

“We have invested more than RM100 million in specialised machinery and facilities to produce the passport and MyKad. The passport’s technical features are also developed in-house and meet all local and international standards,” says Hanifah.

Datasonic has been involved with the making of MyKad since its inception in 1999. In May 2016, the group announced that it had been awarded a 3½-year contract worth RM260.4 million for the supply of 12 million MyKad raw cards and consumables to the National Registration Department (NRD).

In January 2020, the group received a one-year extension to supply 6.1 million MyKad raw cards and consumables. This year, it bagged a RM50.12 million contract to supply the NRD with MyKad, MyTentera and MyPOCA raw cards and consumables for a year from Feb 15.

In February 2013, Datasonic secured a five-year project to supply 10 million units of new passport polycarbonate data page and laser engraving personalisation equipment to the Immigration Department.

Two years later, the group secured a contract to supply 12.5 million units of new Malaysia passport chips to the Immigration Department for five years starting from Dec 1, 2016. It then secured a contract to supply 13.416 million passport booklets for the same duration. This means that Datasonic is capable of producing the entire passport.

Since 2016, Datasonic has been awarded additional contracts to supply polycarbonate data pages as well as passport chips.

It has also recently secured a RM140 million contract from the Immigration Department to produce identification cards for foreign workers, or i-Kad. According to Hanifah, Datasonic is working to expand the capability of the i-Kad to probably include the ability to do online remittances.

Datasonic has recovered in the quarter ended March 31, 2022 (4QFY2022), recording a RM13.4 million net profit compared with the net loss of RM5.6 million in the previous corresponding quarter.

For its latest financial results for 2QFY2023, Datasonic registered a net profit of RM24.9 million, which is 25 times more than the RM1.01 million recorded in 2QFY2022. The recovery in Datasonic’s financial performance was due to the reopening of borders, which allowed Malaysians to resume international travel. Many passports expired during the pandemic but now, there are long queues at NRD offices nationwide.

The recovery in Datasonic’s businesses has led to analysts calling a “buy” on the stock. Of the four research houses that cover it, three have assigned a “buy” call while one has a “neutral”.

The most bullish of the analysts is BIMB Securities’ Afifah Abdul Malek, who has a target price of 80 sen per share for the stock. She says in a Nov 30 report that BIMB remains upbeat on Datasonic’s FY2023 business outlook, driven by solid demand for passports and MyKad, as well as new earnings contribution from the i-Kad project.

Along with his “neutral” call on Datasonic, Lee Meng Horng of RHB Research assigned a target price of 52 sen per share. In a Nov 30 report, Lee says the optimism of a V-shaped earnings recovery is reflected in the price.

“The potential change in public policy from the new government may weigh on market sentiment, given the group’s nature of business as a contractor in the public space, as well as on the backdrop of a rising bond yield/interest rate environment,” he says.

While aiming to “regrow” Datasonic, Hanifah also has an eye on the group’s warrants. He directly owns 6.68 million of Datasonic’s Warrant A, and has 55.51 million units indirectly.

The Warrant A matures on July 5, 2023. They have an exercise price of 54 sen each. At the current share price of 50 sen per share, and the warrant’s price of 5 sen each, the warrant is trading at a premium of nine sen, or 18%, to the mother share.

Datasonic’s share price was the highest at RM4.85 on April 1, 2014, valuing the group at RM3.27 billion. At the current 50 sen per share, Datasonic is valued at RM1.48 billion and is trading at 20.83 times its estimated FY2023 earnings per share.

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