This article first appeared in The Edge Malaysia Weekly on March 1, 2021 - March 7, 2021

AWANBIRU Technology Bhd, previously known as Prestariang Bhd, is looking forward to a brighter future after going through a storm over the last two years with the loss of the much-coveted Sistem Kawalan Imigresen Nasional (SKIN) contract in late 2018.

Now, the technology and talent development group has found itself a new avenue of growth through its partnership with Google Cloud to provide cloud-based data services to Malaysia’s public sector agencies.

In an exclusive interview with The Edge last week, Awantec president and group CEO Dr Abu Hasan Ismail says the partnership with Google Cloud is a step forward for the group from its previous arrangement with Microsoft.

“This partnership allows us to provide cloud-based services to our clients in the areas of Platform as a Service, Infrastructure as a Service, Software as a Service and anything as a service. Our previous tie-up with Microsoft was only for a master licensing agreement (MLA).

“As an MSP (managed services partner), we are responsible to provide the full suite of modules available by Google Cloud and provide them in an integrated platform to the government agencies. We are also responsible for driving the consumption upon boarding them onto the platform,” says Hasan.

Awantec’s wholly-owned subsidiary, Pres­tariang Systems Sdn Bhd, will be the MSP for Google Cloud. It will participate in tenders called by government agencies for the transformation of their data infrastructure.

To be clear, Google Cloud is not the only company appointed by the government for the transformation of its digital data and infrastructure to cloud-based platforms. Other companies appointed are Microsoft, Amazon Web Services (AWS) and Telekom Malaysia Bhd.

Microsoft’s MSP is Enfrasys Solutions Sdn Bhd, while Cloud Connect Sdn Bhd is the MSP for AWS.

The market potential for transforming the public sector’s IT infrastructure and data to cloud-based technology is tremendous. While there are no official figures, industry analysts have indicated a potential government spending of RM6 billion a year.

Moreover, the government recently launched the Malaysia Digital Economy Blueprint (MyDIGITAL) to transform the country into a digitally driven, high-income nation and a regional leader in digital economy.

As part of the MyDIGITAL blueprint, the government has pledged to have 80% of its data stored on cloud platforms by 2022, besides striving for a digitally literate civil service. The government also intends to have 80% of its end-to-end services conducted online.

“Together with our principal Google Cloud and the government, we are going to work hand-in-hand to drive changes within the government, from top to bottom, helping them understand how cloud technology can facilitate in government procurement and services,” says Hasan.

Awantec’s share price has been on a roller coaster over the past one year, owing to the loss of the SKIN contract and the MLA with Microsoft, financial losses and the debt restructuring that it had to undertake.

However, the stock has been on an upward trajectory since Nov 3, 2020, gaining 181% and closing at RM1.04 last Thursday. This gives Awantec a market value of RM738 million and 5.23 times net assets per share.

The group is showing signs of a turnaround, albeit it is still at a very early stage. In the second quarter ended Dec 31, 2020 (2QFY2021), Awantec reported net profits of RM11.2 million, owing to a one-off gain from the disposal of Prestariang Education Sdn Bhd.

Stripping off the one-off gain, impairment loss on plant, property and equipment, and impairment loss on trade and other receivables, Awantec’s core net loss widened to RM881,000 during the quarter from RM75,000 in the preceding quarter.

Nevertheless, its quarterly revenue had increased to RM38.1 million in 2QFY2021, from RM35.5 million in the preceding quarter and RM31.3 million in 2QFY2020.

The group says it has made substantial progress in its rationalisation plan, which has resulted in a strong cash position that will give it the resilience needed to rebuild its revenue base with new partners, product lines and services in the coming quarters.

Its financial position was strengthened with the completion of the private placement of shares and rights issue on Nov 30 last year, which raised gross cash proceeds of RM63.22 million.

The restructuring resulted in Awantec’s cash and bank balances rising to RM69.13 million as at end-December 2020 from RM12.55 million as at end-September 2020, while its short-term borrowings were reduced to RM26 million from RM42.6 million over the same period.

Nevertheless, Awantec warns that its revenue is expected to contract in the near term following its exit from the Microsoft Partner Network. This is because revenue from the Microsoft channel partner agreement formed 91% and 93% of Awantec’s revenue in FY6/2020 and 1QFY2021 respectively.

CGS-CIMB Research analyst Mohd Shanaz Noor Azam notes in a Feb 25 report that the discontinuation of the MLA poses significant downside risk to Awantec’s earnings beyond 2HFY2021F.

Nevertheless, he points out that Awantec is an attractive proxy for the MyDIGITAL initiative. However, he sees minimal earnings contribution in the near term as there has been no specific contract value from its appointment as an MSP for the government’s cloud migration.

“We reiterate our ‘reduce’ rating on the stock, with a higher 60 sen target price as we peg our valuation to a higher 2.7 times calendar year 2022 price-to-book value, +1 standard deviation from its two-year historical mean P/BV multiple (versus 1.9 times previously), as we think the group could benefit from the MyDIGITAL initiative,” Shanaz says in the report.

Awantec had filed a suit against the government for the unilateral termination of the RM3.5 billion SKIN concession agreement (CA) by the Ministry of Home Affairs in 2018. According to Awantec, it had incurred RM231.54 million expenditure between August 2017 and July 2018.

The group claims as much as RM922 million for the termination of the contract, as the CA had also included a formula to calculate the compensation payable to Awantec’s subsidiary Prestariang SKIN Sdn Bhd if the government terminated the contract.

The concession involved a three-year build and deployment phase, and a 12-year maintenance and technical operation phase. 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.

The hearing of the suit started on Jan 25.

When asked whether the case would jeopardise Awantec’s chances of winning government contracts on the cloud data migration and management services, Hasan says he does not believe so, as the government will see them as separate matters.

The opportunity to be Google Cloud’s MSP will also be a springboard for Awantec to get more customers from the private sector. The group’s dependence on a single customer and supplier had in the past become a huge problem.

“We have to do well in the government sector first; we are investing in people to ensure that we can deliver this. There are some in the private sector that are ready to move to the cloud. But we think that we need to grab this great opportunity that is presented to us.

“We need to be a good partner to Google and the government. We will be serving the government sector and looking for opportunities in the private sector. We are already talking to our principal to see how we can seize the opportunity in the private sector,” says Hasan.

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