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It’s crunch time for DNEX (4456) DAGANG NeXchange Bhd

DAGANG NeXchange Bhd (DNeX) may be losing its exclusivity in the processing of customs’ trade facilitation documents but its executive deputy chairman, Datuk Samsul Husin, cuts a nonchalant figure.

A chartered accountant and steward of the group’s information technology and trade facilitation businesses, the 56-year-old Samsul believes DNeX is more than ready for the challenge.

Since 2009, DNeX has been the exclusive operator of the National Single Window (NSW) for Trade Facilitation, which connects the trading community with the Customs Department and the relevant agencies for import and export document processing.

However, this exclusivity will expire once the government rolls out the uCustoms solution, which is set to replace NSW. However, given that the uCustoms implementation has been delayed several times — it is understood that the project has yet to be completed — the NSW contract could see yet another extension, giving DNeX more time to prepare for the loss of a segment that has been its bread and butter. This segment contributed RM91.9 million or 38% to the group’s revenue in its financial year ended Dec 31, 2018.

As DNeX is one of two service providers under uCustoms, it is projected to see a 20% shortfall in revenue once uCustoms is fully implemented.

Cognisant of the fact that it needs to beef up its operations to make up for the expected decline in revenue, the group is looking at leveraging its strong knowledge and industry network in the trade facilitation ecosystem.

In essence, it wants to focus on building up SealNet — its web-based one-stop portal for total cargo and logistics supply chain management. The set-up will include providing trade settlement, trade finance and marine insurance products via SealNet.

“We will be launching our marine insurance portal to facilitate forwarders to select the insurance provider of their choice. We hope to roll out this service by the third quarter of this year,” says Samsul.

In addition, the group is scaling up its system integration (SI) projects.

“As part of SI, we have cyber security, fibre-optic cabling, the iGFMAS project — which is the accrual accounting project for the Malaysian government — and RFID (radio frequency identification),” he says.

“So, if you compare our operations with that of 2014, our revenue stream is much more diversified now.”

Other projects in the pipeline for DNeX include eScroll — a blockchain-based web application that verifies graduation certificates — and its participation in the Makkah Route initiative, a pre-clearance system aimed at helping haj pilgrims fast-track their journey to the holy land.



Government contracts still intact

In 2017, DNeX was awarded the subcontract to supply RFID vehicle entry permit tags for foreign-registered vehicles by the main contractor for the project, TCSens Sdn Bhd — which is reported to be 25% owned by former deputy youth and sports minister Datuk Wee Jeck Seng.

The contract awarded to TCSens was worth RM149.45 million — a RM45.15 million capital expenditure portion and a RM104.3 million operational expenditure portion that was subcontracted to DNeX’s 51%-owned DNeX RFID Sdn Bhd. The RM104.3 million contract is for five years, starting January 2017.

However, this has been the subject of controversy following reports that it was not permitted to be subcontracted to a third party. The matter is currently under probe by the Public Accounts Committee.

Samsul reiterates that as a subcontractor, the company has delivered as per requirements.

Although other e-government concessionaires, such as Prestariang Bhd, have lost major contracts following the change of government last year, Samsul is unperturbed. “I am not too concerned because all along we have been known for our technical capabilities to deliver [government] projects. For example, [the maintenance of] iGFMAS (the Accountant-General’s Department accrual accounting system) is continuing and we are at 94% completion.”

As for the NSW, its extended contract will end on Aug 31. It remains to be seen  whether DNeX will be granted another extension as to date, the group has received three contract extensions since winning the job in 2009.

Samsul declines to comment if the group expects a further extension. However, he believes the group will continue to play an integral part in the trade facilitation space, backed by its 25 years of experience in that domain and the millions of transactions it had processed.

“We are currently processing over 100 million transactions per year and are connected to all the major banks, ports and customs offices in the country. In the last three years, we have fully met our SLAs (service level agreements),” he says.

“I am confident that we will continue to exist within the [new] framework that the government has set out. My focus is to extend our services and make sure our customers are happy.”

He adds that the group is targeting a double-digit increase in net profit for FY2019, barring any global developments that could impact trade.

For its first financial quarter ended March 31, 2019, DNeX posted a 26.5% drop in net profit to RM11.93 million, mainly due to higher income recorded in the previous year for iGFMAS. Revenue in 1QFY2019 declined 3% to RM68.95 million.

On its oil and gas business, Samsul says the group is looking to sell its 30% stake in Bermuda-incorporated O&G associate Ping Petroleum Ltd for at least RM250 million.

“We are looking at any amount above RM250 million. As for the timing for the sale, we are looking at either this year or the next. The window for us to do this is while oil prices are stable at current levels. So, we hope that a buyer can be found as soon as possible,” he says.

If the disposal goes through, the group may pay a special dividend to its shareholders. “We are looking to give a portion of the proceeds to our shareholders as dividends. The remainder will be used for future expansion of our businesses, including acquisitions,” he says.

DNeX will be on a lookout to acquire companies that can boost its information technology and systems integration businesses.

According to media reports, DNeX is one of the front runners to buy into listed Theta Edge Bhd, an IT company owned by Lembaga Tabung Haji. At the close last Thursday, Theta Edge’s market capitalisation amounted to RM43 million.

DNeX was valued at RM501 million, based on its closing price of 28.5 sen per share last Thursday. Year to date, its share price has appreciated by a considerable 24%.

http://www.theedgemarkets.com/article/its-crunch-time-dnex
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