Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on February 6 - 12, 2017.

 

TEAMING up with a well-known partner can sometimes work magic on the share price. This fact is amply borne out by local information and communications technology (ICT) companies when they tied up with Chinese-based Alibaba Group, one of the world’s largest internet companies.

The group, with market capitalisation of US$253.4 billion, was founded by Jack Ma, who has carved out a name for himself as an e-commerce legend. Ma, a former English teacher, is also Malaysia’s digital economy adviser.

On Jan 12, when ICT training and certification provider Prestariang Bhd said it has partnered with Alibaba.com Singapore E-Commerce Private Ltd (Alibaba Cloud) to set up an education platform, its share price climbed 4.13% to RM2.27 in a single day.

However, it failed to sustain. The counter closed at RM2.22 last Thursday.

On Nov 23 last year, when mobile applications, digital contents and e-commerce solution provider AppAsia Bhd (formerly known as Extol MSC Bhd) announced that it had entered into a reseller service agreement with Alibaba Cloud, its share price jumped 37% to 37 sen on Dec 27 from 27 sen on Nov 25.

However, a question arises: do their earnings justify such strong share price rally? AppAsia is a loss-making entity.

“This is speculative. But for some companies, the positive expectations may become a reality,” a fund manager tells The Edge. The fund manager, who still has shares in Prestariang, says if the company can eventually deliver on the agreement with Alibaba Cloud, he will continue to accumulate the stock.

Based on last Thursday’s closing price of RM2.22, Prestariang’s price-earnings ratio stood at 102.3 times.

Nonetheless, the fund manager opines that Prestariang is a growth stock. Even without factoring in the earnings contribution from Alibaba Cloud, the margin of the National Immigration Control System (SKIN) will support the group’s earnings.

Prestariang was appointed by the Home Ministry in 2015 to develop SKIN, a comprehensive security system designed to tighten the country’s border control measures.

Under the memorandum of understanding, Prestariang will partner with Alibaba Cloud and Conversant Solutions Pte Ltd to form a strategic collaboration to create an integrated education platform known as ­EduCloud to drive an innovation ecosystem for the education sector, including education-related activities and services in Malaysia.

Alibaba Cloud is a global cloud service and web-hosting provider and offers platforms for cloud computing and data management. This is the second tie-up between Alibaba Group and a Malaysian company after AppAsia.

Prestariang president and CEO Dr Abu Hasan Ismail tells The Edge that he believes EduCloud can be the catalyst for transforming the education ecosystem for the nation. In Malaysia, the group is looking at over one million tertiary education students and five million students at the school level.

“Malaysia is the hub for education advancement in the region and the OIC [Organisation of Islamic  Cooperation]. Therefore, going into big data makes business sense for us,” he says.

In the past, Prestariang has been focusing on delivering ICT solutions to more than 10,000 schools and 150 institutions of higher learning (IHL) in the country. According to Abu Hassan, the focus now is to have a direct relationship with the schools and IHL.

“We do not expect EduCloud to make any significant financial contribution to Prestariang for FY2017,” he says.

As EduCloud is a maiden entry for the company, Public Investment Bank Bhd analyst Chong Hoe Leong reckons it is something that is going to create a lot of excitement in the long term.

“[EduCloud] will create numerous opportunities if it is successful. Big data is a new revolution going forward. So that will be a significant earnings [contributor],” he says in an email to The Edge. He has an “outperform” call on Prestariang’s shares, with a target price of RM2.87.

For AppAsia, not much information is being shared with investors. It is learnt that the agreement with Alibaba Cloud has been in effect since November, when AppAsia’s wholly-owned subsidiary, Extol International Sdn Bhd (EISB), entered into a reseller service deal with Alibaba Cloud.

Under the agreement, EISB is appointed as Alibaba Cloud’s non-exclusive reseller to drive the sale of certain cloud computing products and services by recruiting, inviting or soliciting companies and individuals to purchase these products or subscribe to its services.

An AppAsia spokesman tells The Edge that the partnership has started to contribute to the group’s business last November. “Since it has just started, the earnings will not be significant, but might in the future,” she says.

She adds that the group aims to turn around the company within a year through the partnership.

AppAsia’s financial performance has been volatile in the past 10 years. It reported a net loss of RM632,000 in the third quarter ended Sept 30, 2016 (3QFY2016), compared with a net loss of RM1.13 million in 3QFY2015. The group’s revenue also contracted 60% year on year to RM1.16 million due to intense competition and currency depreciation, according to its latest financial statement.

The group has been posting losses since FY2009. For the nine months ended Sept 30, 2016 (9MFY2016), its net loss widened to RM4.99 million from RM3.05 million in the previous corresponding period.

Meanwhile, the group announced recently that its chairman ­Datuk Wira Rahadian Mahmud and executive director Toh Hong Chye have jointly acquired Manjung Untung Sdn Bhd, which holds a 4.23% stake in AppAsia.

Following the acquisition, Toh, who is the single largest shareholder, will hold a 25.37% stake in AppAsia, while Rahadian will own 3.17%. Rahadian is also the managing director of Magna Prima Bhd.

Satvinder Singh, who bought an additional 269,000 shares in the company following the announcement of the partnership, is the second largest shareholder, with a 6.28% stake in the group. Prime Minister Datuk Seri Najib Razak’s son Mohd Naziffudin owns 4.93% in AppAsia.

AppAsia’s share price closed at 34.5 sen last Thursday, 27.7% higher than its closing price on Nov 25. Investors who bought the shares a year ago would have gained 134%.

“The sudden surge in App Asia [share price] was due to its tie-up with Alibaba Cloud and also its politically-linked background. However, after the counter has risen close to 30%, I think there is absence of catalyst to drive App Asia,” an analyst tells The Edge.

Will the rally in AppAsia and Prestariang’s shares continue? The answer will depend on their earnings figures going forward.

 

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