Uncertainties linger over e-govt service providers

This article first appeared in The Edge Financial Daily, on October 22, 2018.
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KUALA LUMPUR: The sharp fall in share prices of information technology (IT) companies, some of which has been more than half year-to-date, has made them appealing bargains in terms of share price performance. On top of that, the government stated in the midterm review of the 11th Malaysia Plan (11MP) report it wants to pursue the digitalisation agenda “aggressively” in the remaining period of the plan that ends in 2020.

The government’s plans include the expansion of the Government Online Services Gateway to offer a wider range of online government services via a single portal, deploying multiple channels of delivery focusing on mobile platforms and establishing a digital identity for Malaysians. Some in the investing fraternity see this as an indication of more e-government jobs being in the pipeline for local IT companies.

But not many see bright prospects, at least for the near future. There are some lingering uncertainties over some of the companies amid concerns that the new government will review existing concessionaires, including e-government contracts, to plug leakages.

Areca Capital Sdn Bhd chief executive officer Danny Wong agreed that these companies could benefit from the government’s digital push, but he noted that Putrajaya is looking to manage their costs stricter than before, which could put some at risk.

“These are mostly concession companies which depend on [public] contracts and the government is looking to spend smarter. That may pose a risk to those companies which have secured contracts earlier,” he said.

Public listed companies that are involved in e-government and IT services include MyEG Services Bhd, Datasonic Group Bhd, Dagang NeXchange Bhd (DNeX), Scicom (MSC) Bhd, Iris Corp Bhd and Prestariang Bhd. Companies that have seen the sharpest drops in share prices are MyEG and Datasonic, which have fallen by 49% and 58% respectively.

Besides the earlier selldown of perceived politically linked companies after the general election in May this year, the companies were hammered again last Friday as the duo were mentioned in the charge sheet against former deputy prime minister Datuk Seri Dr Ahmad Zahid Hamidi, who was also the home minister then.

According to the charge sheet, Ahmad Zahid helped a company called Mastro Kenny IT Consultant & Services to obtain projects from MyEG in return for money payment.

He also allegedly received payment from Datasonic for the latter to secure a contract to supply passport chips for Malaysian passports. Datasonic clarified that neither the company nor any of its director had made payment to Ahmad Zahid in relation to the supply of passport chips.

Meanwhile, MyEG announced to Bursa Malaysia that the company had received a confirmation from Malaysia’s anti-graft commission that neither the company nor its board of directors were under investigation in relation to the charges brought against Ahmad Zahid. The company was also not a party to the investigation that led to the 45 charges that Ahmad Zahid was slapped with, it clarified.

CIMB Investment Bank Bhd senior analyst Nigel Foo wrote in a note that the selldown of MyEG shares could be an opportunity to buy in, pointing out that the Malaysian Anti-Corruption Commission had clarified that MyEG was not under investigation.

“MyEG’s share price plunged as much as 30% in [last] Friday’s morning session. We believe the recent price weakness could be an opportunity to accumulate the stock,” he said.

CIMB maintained an “add” rating on MyEG, with a target price of RM1.81, compared with its closing share price of RM1.13 last Friday.

Ongoing projects include Prestariang’s RM3.5 billion National Immigration Control System (SKIN) project and DNeX’s contract extension for the National Single Window (NSW) project. In the 11MP mid-term review report, the government said the uCustoms single-window gateway initiative was set for full implementation in early 2019, meaning DNeX will no longer be the only digital custom clearance service provider at the port. The spotlight has also been cast on Prestariang, whose share price has been bogged down sharply in the last two weeks. Prestariang’s SKIN project is under way. The group has set a target to complete about 30% of works by year end. The 15-year concession is an integrated technology platform to modernise the core applications and infrastructure of the country’s immigration system.

One analyst, who declined to be named, noted that the RM3.5 billion SKIN contract could be reviewed or cancelled, affecting earnings, as the government had been scrutinising many large-sized contracts awarded by the previous Barisan Nasional government.

The analyst added that DNeX may see some competition when its NSW contract extension expires in August 2019 as the government intends to tender out contracts transparently via open tender processes.

“We could see other players competing to get the jobs,” he said.