This article first appeared in The Edge Malaysia Weekly on July 11, 2022 - July 17, 2022

AWANBIRU Technology Bhd (Awantec) has every reason to be optimistic about its future now that the government’s digital infrastructure migration to the cloud is gaining ground, after the finalising and signing of the Cloud Framework Agreement (CFA) in May.

Even prior to the signing of the CFA, Awantec had been able to secure two service contracts from the government worth a combined RM100 million. Now with the CFA signed, there could be more contract wins for the company.

It is not only that the government is trying to get 80% of its digital infrastructure on cloud platforms by the end of this year, but the CFA also provides certainty for a lot of government agencies, including those at the state level, says Awantec CEO Rezal Rahman.

“There is a keen interest from them (state governments and agencies) to adopt the CFA because they see the [benefits]. The first is, obviously, the pre-negotiated pricing and the second is having a structure because all government agencies are driven by circulars and standard operating procedures.

“So, if they adopt something that has been endorsed by the federal government, it would make their lives easier as well,” Rezal tells The Edge at Awantec’s head office in Cyberjaya.

On May 9, the government, through the Malaysian Administrative Modernization and Management Planning Unit (Mampu), signed the CFA with four cloud service providers (CSPs) that had been chosen previously for the government’s migration to the cloud under the MyDIGITAL initiative.

The CSPs are Google Cloud Malaysia Sdn Bhd, Amazon Web Services Malaysia Sdn Bhd (AWS), Microsoft (M) Sdn Bhd and Telekom Malaysia Bhd.

Awantec is the managed service provider (MSP) for Google Cloud Malaysia, while Microsoft is partnering with Enfrasys Solutions Sdn Bhd to offer cloud services to the government. AWS’ MSP is Radmik Solutions Sdn Bhd while TM’s is Cloud Connect Sdn Bhd.

The four MSPs will be responsible for reaching out to government ministries and agencies to find out their needs when it comes to data infrastructure and access.

They will also be charged with educating the government agencies and ministries on the benefits of moving their data to the cloud. Apart from that, the MSPs will be managing the procurement processes with the ministries and agencies, and ensuring timely implementation of the projects and other parameters based on the contracts that they sign.

Meanwhile, the CSPs are the providers of cloud solutions. They may also have to invest in cloud infrastructure such as hyperscale data centres in Malaysia to alleviate the government’s concerns over data sovereignty.

Judging by the two contracts that Awantec has secured so far in regard to providing cloud services, there is a huge potential for the company as more government agencies and ministries migrate to the cloud.

Last December, Awantec entered into a supply and service agreement with Pernec Integrated Network Systems Sdn Bhd to provide Google Workspace solutions, implementation, deployment and support services for a unified communication and collaborative service managed by Pernec.

According to Rezal, the Pernec contract involves a communication platform to be used internally by government agencies and ministries. With a value of RM75.89 million, the contract will run until Feb 13, 2024, and is extendable for a further two years.

Prior to that, in July 2021, Awantec secured a contract for the supply of G Suite Enterprise For Education to schools under the Ministry of Education. Effective from July 9, 2021, the three-year contract has a value of RM22.78 million.

With these contracts, Rezal is confident Awantec will continue to show improvement in its financial performance.

“I think we will deliver an improved financial performance — we are certainly optimistic. We should be able to show our investors that the previous expansion that [founder mentor] Dr Abu [Hasan Ismail] had started, that pivot to the cloud, will start to gain momentum,” says Rezal during the exclusive interview.

Formerly known as Prestariang Bhd, Awantec has been struggling financially after losing the highly coveted Sistem Kawalan Imigresen Nasional (SKIN) contract, which was valued at RM3.5 billion back in 2019.

The group, through its subsidiary Prestariang SKIN Sdn Bhd (PSKIN), had secured a 15-year concession to design, deliver, continuously maintain and provide scheduled upgrades for a new immigration and border control system for the Immigration Department of Malaysia on Aug 9, 2017. Under the concession agreement, PSKIN was to receive about RM3.5 billion over the 15-year period.

In December 2018, PSKIN received a letter from the Ministry of Home Affairs stating the cabinet’s decision to terminate the SKIN project by way of expropriation. The termination took effect on Jan 22, 2019.

PSKIN then proceeded to take the matter to court. In April 2019, the company filed a legal claim totalling RM732 million against the government for the unilateral termination of the project.

Awantec had also lost a master licensing agreement from the government for the supply of Microsoft software, and was excluded from the Microsoft Partner Network.

Since then, Awantec had been consistently in the red until the financial year ended June 30, 2021, when the group recorded a net profit of RM9.88 million, mostly owing to one-off gains on disposals.

Nevertheless, its pivot towards managed cloud services with Google Cloud, as well as partnerships with the likes of SkillSoft to provide certified training services, is gaining traction. According to Rezal, with the signing of the CFA, entities outside of the federal government have indicated their interest in working with Awantec to migrate their data to the cloud.

However, the CFA and the migration of the government’s data to the cloud under MyDIGITAL is not yet a sure bet for Awantec. This is because Google Cloud, with Awantec as its local partner, is not the only player in the market, and different agencies might find other CSPs more suited to their needs.

A potential issue for the government would be data sovereignty. It refers to jurisdictional control or legal authority that can be asserted over data because its physical location is within jurisdictional boundaries, according to Macquarie Government, an Australian data centre operator and developer.

During the launch of the MyDIGITAL initiative in February last year, the then prime minister Tan Sri Muhyiddin Yassin had said that CSPs will be investing between RM12 billion and RM15 billion over a five-year period from the launch.

AWS is said to be in discussion with the Ministry of International Trade and Industry to develop data centres in the country, while Microsoft is set to invest around US$1 billion (RM4.4 billion) over the next five years to develop its first Azure data centre region in the country, according to news reports.

In contrast, Google Cloud has yet to say if it will invest in data centres in Malaysia.

Awantec’s profitability is still uncertain at the moment. In the nine months ended March 31, 2022, the group reported a lower net profit of RM4.37 million compared with RM10.43 million in the previous corresponding period.

Due to the company’s rather small profit, it is trading at quite a lofty valuation. It had a trailing 12-month price-earnings ratio of 76.15 times based on its share price of 36.5 sen last Wednesday.

The stock has tumbled 50.7% year to date to close at 34.5 sen last Thursday, valuing the company at RM272.41 million.

While the group is still pursuing its claims against the government for the unilateral termination of SKIN, Rezal says it is always preferable for both parties to have a mutual resolution.

“While we continue to go to the court — which is our right and what, I think, is appropriate for our shareholders who had invested [in us] and expected the benefits of the project — we are also looking for an amicable resolution outside of the court,” he says.

He adds that there had been some “reaching out” between Awantec and the government to resolve the issue amicably out of court. However, there is nothing concrete yet that can be presented to its shareholders.

Nevertheless, Rezal is quick to point out that the RM732 million claim is a separate issue with little bearing on Awantec’s day-to-day operations as well as its relationship with the government, as it continues to try to gain projects from the latter.

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