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Eddie Ong’s bold bet on tech

HAVING made a big entrance into the corporate scene in 2017, Datuk Eddie Ong Choo Meng has become a household name among some investors. With substantial stakes in at least 10 listed companies, Ong has certainly got tongues wagging about what his end game will be. He now tells StarBizWeek that his foray into the corporate world is far from over.

And his latest move is to put his efforts into attempting to build a tech giant.

But coming from a background of agri chemicals and fertilisers, the Ong family’s original business, can the 44-year-old successfully build a tech company of significance?

The tech sector is brutally known for failures and the burning of cash and heavy losses. Just look at the recent experience of Japan’s SoftBank, which reported its largest-ever quarterly loss of US$23.4bil (RM103bil) for the three months ended June, 2022, driven by poor performance of its flagship tech investments.

Global tech stocks are significantly down in their value, a sell-down that began in late 2021 on fears of an economic slowdown. Lofty valuations of tech stocks are now facing a reality check.

None of that seems to deter Ong’s optimism of venturing into the sector.

Sitting quietly confident in the lounge of the Shangri-La Hotel Kuala Lumpur this week, Ong says: “Just watch this company build something great in the tech space. We are going to be a true tech company and not one that is merely digitalising traditional businesses.”

On Tuesday, Ong was made the group chief executive officer (CEO) and executive director of Hextar Technologies Solutions Bhd (HexTech) – a company he bought into in March 2021 and now holds a 71.47% stake.

Two notable names in the financial industry have also been appointed to HexTech’s board, namely former Bank Negara governor Tan Sri Muhammad Ibrahim as its independent non-executive chairman, while Choo Joon Keong as group deputy CEO and an executive director. Choo was formerly the CEO of Bangkok Bank Malaysia.

“We are pleased that Tan Sri Muhammad Ibrahim has agreed to come on board. Having been instrumental in launching the financial technology (fintech) regulation under his tenure, his input and guidance will be invaluable to us,” Ong adds.

According to Ong, when HexTech (formerly Complete Logistic Services Bhd) announced it was diversifying out of logistics into the technology business in March 2022, it has already began exploring tech business models.

The plan is to create a fintech super app.

He says the app HexTech is creating is not looking to compete but to complement financial service providers, including the newly-formed digital banks.

“We will have features which will facilitate the empowerment of the user, being the man in the street, by assisting them in their decision-making process.”

Declining to reveal more, he says the company is building the app in-house from scratch, having roped in the right people, and aims to kick it off with a big bang.

“We are envisioning it to be ‘the first app you use when you wake up and the last app you check before you sleep’”.

He acknowledges that it will be a challenge to win the trust of users but adds that he has in mind ways in which to onboard users and have a high level of “stickiness” of users to the super app being built.

Ong says a significant budget is being allocated for HexTech’s plans, which could entail a fund raising exercise such as a private placement, rights issue or other means.

As to when it will be rolled out, Ong says the company is working towards being able to announce the details by the middle of the year. And if it is successful, it hopes to expand regionally and to other parts of the world.

While it’s left to be seen if these new board members can help steer HexTech into a true tech firm, its shares continue to rally on Bursa Malaysia.

This week alone, HexTech’s shares were up by 22.4% to hit a fresh new high of RM24.28 – translating into a market cap of RM3.1bil.

In the past year, the stock has shot up by a whopping 867.3%. But at this price, the stock trades at a demanding price earnings (PE) multiple of 181 times.

On this, Ong says that the stock market tends to move ahead of fundamentals.

“HexTech is a tech company. A company in this space should be able to give big growth where products are able to move across boundaries, such as the likes of Amazon and Microsoft. Then investors will give a valuation based on tech as opposed to PE which is based on profits,” he explains, pointing to the United States where high-tech companies are valued based on revenue multiples.

Meanwhile, Ong’s corporate moves of acquiring stakes of more than 20% in nine public-listed companies (which have a combined market cap of over RM9bil) has caught the eye of the market.

How did he fund these and what is the end-game?

“Hextar Global Bhd, our flagship company involved in agrochemicals, is a market leader.

“Its strong cash flow allowed it to pay dividends consistently. From here, we were able to leverage on the strong foundation as the stepping stone for bigger things.”

Ong surfaced as a substantial shareholder of Hextar Global in 2017 after he engineered a reverse takeover of competitor, Halex Holdings Bhd.

Halex was renamed Hextar Global after a major business injection by his family vehicle, Hextar Holdings Sdn Bhd.

The following year, the businessman went on to acquire a major stake in Hextar Industries Bhd (formerly known as SCH Group Bhd).

“We were also very fortunate on the timing of some of our acquisitions such as in the case of Hextar Healthcare Bhd.”

Ong’s emergence in Hextar Healthcare (then known as Rubberex Corp (M) Bhd) happened in late February 2020, just before the outbreak of Covid-19. He made huge gains when the share price of the Perak-based glove maker shot up amid unabated investor interest in rubber glove makers.

Apart from HexTech, he subsequently bought major stakes in SWS Capital Bhd, Opcom Holdings Bhd, Classic Scenic Bhd, Pekat Group Bhd and KIP Real Estate Investment Trust.

Elaborating, Ong says he is presently building a group that comprises different industries with a combination of traditional industries like fertilisers and furniture and new industries like 5G and tech.

“We are now involved in more than 30 different industries and is still growing its portfolio of listed companies. The intend is to make each individual company bigger and better and fundamentally stronger.”

For example, he is believed to be setting in motion a plan to enhance SWS Capital, a furniture maker whose financial performance has not been all that good.

“We are also looking for more acquisitions under the healthcare umbrella.”

On the other hand, he points out that Classic Scenic is doing well with profits doubling in the past year, while Pekat will be the group’s renewable energy play.

But can Ong continue to play a role in the other companies with HexTech likely to take up much of his time?

Yes, according to him. He says while he may not be on the board of these companies, he has trusted representatives on them to represent him.

“I also believe our listed companies have good fundamentals with solid and strong management which have been with us for a long time.”

With the Hextar group of companies in a multitude of businesses, it is akin to a conglomerate.

However, Ong considers it far from being one.

“Our target is a combined market capitalisation of RM30bil to be deemed successful. Until we achieve that target, we will continue the hard work, persevere and wish for a bit of luck,” he quips.

According to Ong, the acquisitions were funded through debt, equity or a combination of both, taking into consideration the potential earnings of the target company, the strength of its balance sheet and cash flow generating capabilities.

He was also cognisant of the need for a “cleaner structure”.

“All our listed companies are individually owned by me or under my private holding companies. There are no cross-shareholdings amongst the listed companies.

“This enables us to differentiate each company and industry clearly, which in turn allows bankers and investors to value and assess the companies easily,” he says, adding that he has not sold any shares in these companies except when transferring blocks within the group for administrative purposes.

On a personal level, he considers his “borrowings to be manageable compared with the quality of the collateral and ability to pay via free cash flow”.

In November 2022, Ong surfaced as the second largest shareholder of Ipoh-based transport terminal and bus operator, Perak Transit Bhd.

His stake stood at about 9% although Ong does not discount the possibility of upping it further.

“Our forte has been in mergers and acquisitions, hence a key area is to continue expanding and growing through acquisitions, provided it is value accretive. The good thing is we got 10 arrows shooting, so we can target a wide range of industries,” he concludes.

https://www.thestar.com.my/business/business-news/2023/01/07/eddie-ongs-bold-bet-on-tech

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