This article first appeared in The Edge Malaysia Weekly on January 18, 2021 - January 24, 2021
DAGANG NeXchange Bhd (DNeX) plans to reduce its dependency on a single segment and a single customer by growing all its core businesses of trade facilitation, system integrator (SI) and energy segments, says group managing director Datuk Seri Syed Zainal Abidin Syed Mohd Tahir.
In an exclusive interview with The Edge, Syed Zainal says the group recognises the risk of having all its eggs in one basket. Through its subsidiary Dagang Net Technologies Sdn Bhd, DNeX is the proprietor of the National Single Window (NSW), a one-stop system for trade facilitation that links the trading community with government agencies.
“We have always been relying on one single income with Dagang Net, which is the NSW, but we have the capability. So, my plan is to diversify our customer base, going for the bigger companies that are doing a lot of trading, and becoming their trade facilitation partner.
“Right now, these big companies have their own ERP system, but sometimes these systems are manual. So, we can get them connected to our system and digitise their processes, resulting in better efficiency,” says Syed Zainal.
The system manages the documentation processes for import and export activities in Malaysia and has been in service since 2009. The custom clearance function of the NSW was to be replaced, however, by a new system called uCustoms.
There are unresolved issues with uCustoms, which is why the system is not fully operational and has been shutdown for an unspecified period by the Royal Malaysian Customs (RMC) starting this year. On Dec 10, the RMC had issued a memo that the uCustoms system was to be shut down for an unspecified period for a technical review and upgrading. uCustoms has been in the works since 2013, and the platform is said to cost around RM450 million.
Although DNeX’s NSW is still in place, the possibility of the system being replaced by a new vendor led to the group’s decision to look beyond the government and Malaysia for a new avenue of growth.
The contract for NSW will expire in July this year, says Syed Zainal, but since uCustoms has yet to go live, the NSW will still have to be maintained, and he believes the system will be extended beyond the expiry date.
According to Syed Zainal, around 80% of Malaysian trade is processed by the NSW, which means about 20% is not processed through the system. DNeX has already managed to get IKEA and Intel to integrate their ERP systems with the NSW.
DNeX is also looking to offer more value-added services to Dagang Net’s customers. For example, through Sealnet, DNeX will be able to offer the companies other relevant services.
Customers that use Dagang Net will now be able to employ Sealnet to find marine insurance and logistics providers, warehouses, trade finance and even factoring services. Sealnet will capitalise on Dagang Net’s database to offer the right services to the right customer, says Syed Zainal.
“We want to enhance our offerings to the companies. Our job is to make their cost of doing business cheaper and more efficient. So, we are continuing to improve our back-end system so that the system will always be smooth and efficient for the customers to use,” he adds.
DNeX is also exploring opportunities to export its capabilities in trade facilitations to other countries. Some countries that have yet to have an NSW platform are now issuing tenders for that, and DNeX intends to participate.
For example, DNeX is currently negotiating with a company in Thailand that has been awarded a contract by the government to roll out an NSW for the country, says Syed Zainal.
“We hope, if everything goes right, to have some sort of collaboration so that we can export our expertise now. Whether it is purely system development or a joint venture, it is still too early to say, but we want to expand our expertise in Malaysia into the region and beyond,” he says.
Meanwhile, DNeX will also grow its SI and energy segment concurrently with the trade facilitation segment. For SI, which includes consultancy services, the group will be approaching more ministries and government departments to offer its expertise.
One of the SI contracts that DNeX has secured so far involves the maintenance of the integrated Government Financial and Management System (iGFMAS). The last contract that was secured was for a tenure between Aug 10, 2019 and Aug 9, 2020.
The contract was worth RM57 million and has been extended to Aug 20, 2021. DNeX hopes it will continue to be awarded with the contract to manage the iGFMAS.
DNeX is also one of the bidders for the National Immigration Integrated System (NIIS) contract, alongside My EG Services Bhd, Iris Corp Bhd, Datasonic Group Bhd, Heitech Padu Bhd and Dataprep Holdings Bhd, to name a few.
It is said that the bids for the contract came within the range of RM1 billion to RM1.8 billion.
“On the NIIS, we have submitted a tender and our pricing is competitive. We do not know what the final decision will be. Many parties are interested in the contract,” says Syed Zainal.
DNeX does not provide the breakdown of revenue and incomes from the different segments as at the end of the third quarter of 2020. It only reports the energy segment separately from the IT segment, which includes the SI, consultancy and trade facilitation businesses.
As at Sept 30, 2020, the IT segment accounted for 68.5% of the group’s revenue of RM176.2 million, while the rest was from the energy segment. The IT segment’s operating profits contributed 63.9% to the group’s total of RM21 million.
To grow the energy segment, DNeX is in the midst of acquiring the rest of the stake it does not own in Ping Petroleum Ltd, an oil and gas (O&G) upstream production company with a producing asset in the Anasuria cluster in the North Sea off UK shores.
The heads of agreement of the acquisition was signed in Aug 26 last year, with the share and purchase agreement expected to be signed soon.
In 2019, DNeX had been planning to dispose of its 30% stake in Ping at a valuation of at least RM250 million. The plan was scrapped and DNeX will acquire the rest of Ping instead.
Commenting on the change of direction in its investment in the O&G sector, Syed Zainal says Ping is a low-cost producer, with a production cost per barrel of around US$20. With oil prices hovering around US$56 per barrel, there is a healthy margin to be made by Ping, he adds. Furthermore, the disposal would not have attained the valuation that DNeX was looking for.
Asked whether the RM250 million price tag would be the benchmark for the acquisition of the rest of the stake in Ping, Syed Zainal concedes as much. It can be expected that DNeX will have to fork out at least RM500 million for the rest of Ping.
DNeX is also a bidder for SilTerra Malaysia Sdn Bhd, the semiconductor fabrication company wholly-owned by Khazanah Nasional Bhd. DNeX is partnering with Beijing CGP Investment Co Ltd in a 60:40 consortium.
Khazanah has yet to make a decision pertaining to the planned disposal of SilTerra. The semiconductor foundry has been loss-making since 2008, becoming the company with the second-biggest accumulated losses among companies in Khazanah’s stable, after Malaysia Airlines Bhd.
Clarifying The Edge’s story last week (Issue 1352, Jan 11, “DNeX has until end-January to win SilTerra”), regarding the approval given by the government of China for Beijing CGP to withdraw funds for the acquisition, Syed Zainal says the approval — which will expire at the end of this month — can be renewed and extended.
“Our offer for the acquisition of SilTerra will still stand even beyond Jan 31. We just have to renew our interest if the approval lapses. SilTerra requires technology, and Beijing CGP can give access to technology,” says Syed Zainal.
DNeX’s counter was trading at 21.5 sen last Thursday, 21.8% lower than a year ago, valuing the group at RM410 million. The group is still in the red in the nine-month period ended Sept 30, 2020, with a net loss of RM14 million versus a net profit of RM33.77 million the year before.
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