Smallish firm is banking on this segment to diversify profit channels
PETALING JAYA: While e-business solutions and cyber security remain Systech Bhd ’s bread-and-butter business, it has embarked on an extension of its IT operations, namely blockchain.
To this end, the Ace Market-listed firm is likely to sign up its first major client next month, chief executive officer Raymond Tan (pic) said.
In time to come, the goal is to have this blockchain segment be an equal contributor to the group’s overall profit, he said.
Systech, which has a market capitalisation of just above RM100mil, first ventured into blockchain last year when it bought a 49.99% stake in Rofarez Solutions Sdn Bhd, which has since been renamed Syscode Sdn Bhd.
Syscode is founded and helmed by self-professed IT geek Reza Ismail, an ex-regional software development manager at MYOB Asia and one of the first blockchain-certified professionals in Malaysia.
The firm is basically involved in cloud-based solutions and blockchain technology development.
“We apply this technology in real-world industry solutions through utilising smart contracts and decentralised application architecture,” said Reza.
For the uninitiated, blockchain is loosely defined as a digitised, decentralised, public ledger of transactions that can be traced and verified at any point in time by relevant parties.
Data is saved inside what are called cryptographic blocks, which are joined together forming a chain of data.
“What this essentially means is that there is an added layer of security and transparency, plus these data cannot be hacked,” said Reza, who believes that the trend of implementing blockchain technology in Malaysia is at its infancy stage and will become a necessity for industries as the country catches up with the rest of the developed world.
Apparently, he is not the only one who thinks so.
CEO and fund manager at Inter-Pacific Asset Management Sdn Bhd (InterPac) Lim Tze Cheng, who has bought Systech shares for the three funds he runs, believes that the potential of blockchain is immense.
“Blockchain is a little like what the Internet was in the 1990s...no one was really sure what it would evolve into then but look at it now,” said Lim.
He purchased Systech shares at an average of about 30 sen each and is holding on to the shares for now, although at its current price of 31.5 sen, it is already trading at a price earnings ratio of over 60 times, which is higher than most of its local IT peers.
“For me, the important criterion when I buy into any stock is the management and I think Systech’s management is decent and innovative and I am in for the long term,” said Lim, who was handpicked by local tycoon Tan Sri Vincent Tan Chee Yioun to help turn around the performance of funds at InterPac two years ago.
Collectively, the three funds that Lim helps manage at InterPac had a total of 1.8% stake in Systech, according to Systech’s latest annual report.
For the first quarter ended June 30, Systech made a net profit of RM787,00O compared with a net profit of RM407,000 for the same period a year ago. Revenue was also higher at over RM9mil compared with RM3.8mil for the same period in 2017.
The low profit margin is because the company only owns half of most of its subsidiaries.
Moving forward, Tan said he is confident of getting more business as the blockchain and cyber security trend within the region and especially in Malaysia continues to pick up pace.
Higher profit should subsequently follow, he added.
Starting off as a solutions provider more than a decade ago, Systech, which is in a net-cash position, had in 2014 bought 51% of Sysarmy Sdn Bhd for RM255,000.
Sysarmy is in software research, big data analytics and related applications focusing on cyber security, security network monitoring and advisory.