KUALA LUMPUR: HeiTech Padu Bhd, one of the favourite technology stocks on Bursa Malaysia in the early 2000s, has been making a comeback to investor radar, with a slew of government contract wins.
Its share price, which has been trading between 62 sen and 75 sen in the past year, touched a peak of 85 sen on Feb 14 after the group announced that it had won contracts worth RM19.55 million from the Ministry of Health.
According to group chief executive officer Harris Ismail, 60% of its revenue comes from government contracts and the remaining 40% is derived from the private sector, which ranges from financial services institutions to retailers.
“We are comfortable with the 60:40 ratio, primarily because the bulk involves safe-to-do projects from the government. No doubt there have been some issues with the payment [from the government], but our revenue stream is nonetheless guaranteed and secured in times of economic slowdown,” he told The Edge Financial Daily in an interview.
Last month, HeiTech announced that it had secured a system upgrading contract worth RM177 million from the Road Transport Department (RTD) on a direct negotiation basis, prompting many to question the potential improvement in the group’s financials at the expense of Malaysian taxpayers.
To this, Harris said HeiTech Padu’s contract from the RTD was a continuation from the original contract that it had bid for previously.
“Our game is always fair and competitive. I think that there is a misconception regarding direct negotiation out there. All of our government contracts originated from an open tender that we bid previously and the so-called direct negotiation is just a continuation from earlier projects,” he said.
According to filings with Bursa Malaysia, HeiTech clinched a total of RM282.03 million in government contracts this year, compared with some RM70 million in 2013.
HeiTech’s comeback can also be attributed to the emergence of Permodalan Nasional Bhd as a substantial shareholder after the country’s largest fund manager acquired 27.88 million shares or a 27.54% stake from Amanahraya Trustees Bhd on Dec 16, 2013.
Harris, however, was quick to point out that the change in shareholdings was merely an investment decision between the two shareholders, and does not affect the day-to-day operations of HeiTech.
Its other major shareholders include Padujade Corp Sdn Bhd, with a 30.15% stake, and its chairman Datuk Mohd Hilmey Mohd Taib, who owns 7.74%.
Despite bagging numerous government contracts, HeiTech plunged to its first-ever net loss of RM32.74 million for the financial year ended Dec 31, 2013 (FY13) on escalating project development costs.
The group’s net loss for the first half ended June 30, 2014 (1HFY14), however, narrowed to RM6.58 million from RM7.37 million a year ago on higher revenue of RM184.23 million from RM165.33 million.
Harris expects the group to turn profitable in the second half of the year, helped by cost-saving initiatives, improved earnings via business diversification as well as new projects.
HeiTech’s current order book stands at RM200 million to RM300 million, equivalent to 60% to 70% of its annual revenue.
The group is bidding for RM800 million worth of projects, which mainly comprise government jobs.
In the second quarter, HeiTech’s businesses in managed services, national security and transportation continued to be the main driver of the group’s revenue, with contribution of 47%, 22% and 8% respectively.
Harris said the group plans to diversify its business into the property and engineering sectors on a joint-venture basis, with an announcement to be made to Bursa when its plan is ready.
“For the property sector, we are looking at intelligent and smart city-related projects, while we are looking at providing logic control services in the engineering segment.
“But don’t get me wrong. We are still in our core business of providing information and communication technology services,” he said, adding that the new ventures are expected to be recognised in its book within three to five years after they are announced.
Harris is unperturbed by the group’s high gearing level of 60%, with debts and assets totalling RM200.35 million and RM501.74 million respectively as at June 30, 2014.
“Yes, our debt is high, but it is still manageable as we have secured our loans against our assets and project cashflow. In other words, the arrangement is such that the government will make payments directly to the bank, based on favourable terms and conditions in the contract,” he said.
Harris said the group is in a “somewhat comfortable zone”, given that its total assets are still higher than its debts.
HeiTech plans to raise RM100 million next year as it bids for more private-financing initiative (PFI) projects.
“At present, we won’t be competitive enough to go for PFI projects if our proposals are backed by bank borrowings. Therefore, we have to ensure that we have strong internal funds and hope to raise additional capital next year,” he said, adding that sukuk will be one of the fundraising options.
Harris added that merger and acquisition is unlikely to be pursued in the short term as the group is in the midst of “restructuring the HeiTech house” to turn itself around.
HeiTech shares closed one sen higher to 64 sen last Friday, giving it a market capitalisation of RM64.78 million.
This article first appeared in The Edge Financial Daily, on October 20, 2014.