Interview Datasonic embarks on expansion trail

by **hlk** Wed 04 Dec 2013, 17:50

Business & Markets 2013
Written by Esther Lee of theedgemalaysia.com
Wednesday, 04 December 2013 16:30
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THE once overlooked MyKad supplier Datasonic Group Bhd is eyeing an
expansion of its operations through a potential strategic acquisition of a second
card assembly plant. This move could tip the scales in its favour for another
extension of the contract for the MyKad project from the National Registration
Department (NRD).
“We are mulling over the possibility of acquiring a card plant to expand our
business, improve our margins and mitigate any unforeseen circumstances,”
says Datasonic group managing director Datuk Hanifah Noordin in an interview
recently.
Earlier this year, Datasonic acquired a property in Petaling Jaya, Selangor, to
set up a card assembly plant and to serve as its new headquarters. RHB
Research Institute opines that the company’s gross margin from the production
of MyKads could be boosted by between 30% and 35% when the assembly
plant is commissioned at the end of the year, thanks to cost synergies.
Currently, the group outsources the assembly of MyKads to third parties.
Datasonic’s RM183 million second MyKad contract will end on Dec 31 but it is
optimistic of receiving an extension of the contract. The group has already
made a proposal to the NRD to supply another 10 million MyKads.
“We are confident that the government will award this contract extension to us
based on our excellent track record, superior quality and competitive price,”
says Hanifah.
Datasonic has so far won two contracts from
the NRD for the supply of new polycarbonate
MyKads, the operating system and the chips.
In 2011, Datasonic won the first contract to supply four million MyKads for RM73.1 million. The contract
was later extended in 2012, with the NRD requesting another 10 million MyKads in a contract valued at
RM183 million.
Apart from MyKad manufacturing, Datasonic is also the company behind the new polycarbonate photo
page in passports issued by the Immigration Department since April this year. The contract for 10 million
polycarbonate photo pages is worth RM284.7 million for a period of five years and will expire on Jan 31,
2018.
During its initial public offering (IPO) last year, Datasonic set aside RM6 million of its proceeds for
research and development expenditure to be utilised within two years. As at Aug 30, the group has only
used RM1.95 million for R&D.
According to Hanifah, Datasonic has invested extensively in R&D and technology to ensure that the
new MyKads are superior in quality and difficult to forge. “The identity card number, name, photo, micro text and chip serial number are all laser-engraved onto the card body, making it highly
secure and impossible to tamper with.”
Notably, Datasonic is banking on its self-developed chip operating system, which allows it to be independent of the chip suppliers. This
also allows the group to ensure the quality of its chips and enables it to price its products lower than its competitors without suffering steep
margin cuts. One of its competitors is Iris Corp Bhd.
“Our philosophy is to provide cheaper and better state-of-the-art solutions for our customers, especially for the government, at competitive
prices. To achieve this, we have made strategic alliances with world-class companies that are committed to the transfer of technology to
us,” Hanifah explains.
“Such global alliances have resulted in a quantum leap advancement of our skill sets, which have led to the development of our very own
home-grown chip operating system, making us independent of chip suppliers and endowed us with the power of alternatives.”
Hanifah adds that Datasonic is ready to export its integrated solutions overseas.
In the past, the group tried to break into the international market with its smart card
personalisation technology. It was close to a joint collaboration with a Sudanese
company to implement national identity card, e-passport and land transport ICT and
smart card system projects in Sudan but this was called off in July this year as both
parties were unable to agree on the establishment of a joint initiative.
Datasonic is keeping mum about its overseas ventures at this juncture, merely saying
that a few of its current partners have expressed interest in project collaborations with
the group outside of Malaysia.
When Datasonic made its debut on the Main Market in September last year, it traded
below its IPO price of RM2 for nine months. It only started attracting investor interest in
May and its share price has skyrocketed more than five times from RM1.45 to RM8.43
last Wednesday.
For the cumulative six months ended June 30, Datasonic’s net profit ballooned to
RM35.64 million from RM16.06 million a year ago. Meanwhile, revenue grew to
RM118.29 million from RM83.25 million, with a significant portion derived from its supply
of MyKads.
RHB Research, the only research house covering the group, has set a target price of
RM10.51 based on 15 times its forecast FY2014 earnings. The research house expects
Datasonic’s bottom line to breach the RM100 million threshold by FY2015.
This article first appeared in The Edge Malaysia Weekly, on November 25, 2013.