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DNeX and Theta Edge in two-horse race for NIISe project

This article first appeared in The Edge Malaysia Weekly on May 27, 2024 - June 2, 2024

THE government is understood to have narrowed the field down to two companies — Dagang NeXchange Bhd or DNeX (KL:DNEX) and Theta Edge Bhd (KL:THETA) — for the National Integrated Immigration System (NIISe) project aimed at integrating the border control system under various agencies of the Ministry of Home Affairs, say sources.

After a clarification meeting between the two companies and the government that is expected to be held this week, a contract may be awarded by end-June, the sources add.

The narrowing down of the list of contenders to two players would mean that HeiTech Padu Bhd (KL:HTPADU), which had been shortlisted with DNeX and Theta Edge in February, is no longer in the running for the contract award. The sources say they are not aware of why the company has dropped out of bidding for the project worth an estimated RM1 billion.

“Yes, HeiTech Padu is out of the running, but I am not sure why … What we do know is that there is a disparity between the two remaining bids, quite a substantial disparity, and there are some issues surrounding compliance with the terms of the contract, which is why there is such a huge difference in the bids … a few hundred million ringgit,” says one of the sources.

“At the clarification meeting, the government will ask the two parties to review their bids, and maybe look at compliance with the terms of the tender, before seeking their final bids.”

Another source says the government is wary of cost overruns and variation orders, which would increase costs, and is therefore hesitant to merely consider lower bids. Instead, it is looking at the whole project in a holistic manner.

The NIISe project involves the integration of data from 13 modules of the existing border control system, including the foreign workers segment, advanced passenger screening system, facial and fingerprint biometrics, professional visit passes, passports and travel documents.

To recap, the NIISe contract first came about as the RM3.5 billion Sistem Kawalan Imigresen Nasional (SKIN) project was won by AwanBiru Technology Bhd (then known as Prestariang Bhd) (KL:AWANTEC) in August 2017. However, in December 2019, the contract with Awantec was terminated by the Pakatan Harapan government. Subsequently, during the Perikatan Nasional administration, Iris Corp Bhd (KL:IRIS) was appointed to take over the project in January 2021, and SKIN eventually morphed into NIISe, which was cheaper at RM1.16 billion and in line with the government’s austerity drive.

However, the contract with Iris Corp was terminated in August last year, allegedly for falling behind schedule and not being able to meet deadlines. It is not clear how much of the project the company has completed, but its initial contract was for a period of 54 months, from March 1, 2021, to Aug 31, 2025, before receiving a year’s extension to Aug 31, 2026.

The home ministry called for proposals to design, implement and maintain the NIISe project in mid-December last year and submissions closed on Jan 10. Apart from DNeX, Theta Edge and HeiTech Padu, the other companies that submitted proposals included Datasonic Group Bhd (KL:DSONIC), Scicom (MSC) Bhd (KL:SCICOM), Bestinet Sdn Bhd, MyEG Services Bhd (KL:MYEG), Microlink Solutions Bhd (KL:MICROLN), Infomina Bhd (KL:INFOM), REDtone Digital Bhd (KL:REDTONE) and Sapura group.

One of the sources says the remaining portion of the project could be valued about RM1 billion considering that Iris Corp was awarded the contract three years ago, coupled with the weaker ringgit against the US dollar. In March 2021, the local currency was trading at 4.07 to the greenback. But now, it is up more than 8% at 4.71. Other costs are likely to have gone up as well.
The two contenders

DNeX, which has technology, IT and energy businesses, has been operating the National Single Window, which involves providing e-services for trade facilitation, electronic customs-related transactions, duty payments and electronic document transfers. Among others, it also provides a one-stop global digital trade and logistics cloud service, operating a digital supply chain ecosystem.

Other key revenue generators for DNeX include its upstream oil and gas outfit Ping Petroleum and semiconductor wafer foundry SilTerra. For the 18 months ended Dec 31, 2023 (the company had changed its financial year end from June 30 to Dec 31), it suffered a net loss of RM119.95 million from RM1.91 billion in revenue.

In the notes that accompany its financials, DNeX said the losses were a result of “negative gross profit margin coming from the group’s technology division while the group’s negative result was mainly due to higher unrealised foreign exchange loss”.

At end-December last year, DNeX had cash and cash equivalents of RM411.04 million. It also had retained earnings of RM643.86 million.

On the other side of the balance sheet, the company had short-term debt commitments of RM283.39 million and long-term borrowings of RM14.01 million. Both short- and long-term borrowings are secured.

DNeX had a market capitalisation of RM1.42 billion based on the stock’s closing price of 44.5 sen last Thursday. The counter had gained more than a third since early February this year.

Theta Edge, a communications and technology company, is 27.28%-controlled by pilgrims fund Lembaga Tabung Haji. Its other substantial shareholder is Threadstone Capital Sdn Bhd, which has 16 million shares or a 13.56% stake in the company. Threadstone is the vehicle of Zainal Abidin Abd Jalil and Haslinah Hassan.

In September last year, Theta Edge announced a collaboration with Estonian technology firm Cybernetica AS on joint development, implementation, marketing and promotion of digital identity products exclusively in Malaysia and digital identity, cybersecurity, privacy enhancement and interoperability within Malaysia and other Asean countries on a project basis.

For its financial year ended Dec 31, 2023, Theta Edge chalked up a net profit of RM9.58 million on the back of RM144.05 million in revenue. For FY2022, it recorded a net profit of RM7.61 million on a turnover of RM94.27 million.

As at end-December last year, Theta Edge had cash and cash equivalents of RM56.9 million, with no borrowings. However, it had racked up accumulated losses of RM34.22 million.

Theta Edge shares ended trading at RM1.60 last Thursday, which translated into a market capitalisation of RM188.7 million. The stock had gained almost 165% since early February.

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