Technology stocks have been all the rage over the last two weeks.
In particular, six stocks (see table) have seen their market capitalisation rise by almost a billion ringgit in that period.
So why are investors chasing these tech stocks?
One reason in the pending Integrated Immigration system (IIS) project.
The Home Affairs Ministry issued a request for proposal last May for the Integrated Immigration System (IIS). The tender for this system is expected to close next month with the contract being broken up into a few different packages.
It is understood that that consortiums have been formed to tender for this job.
Heitech Padu’s shares shot up 30% on July 19 on the back of this news.
Scicom spiked up by some 17% from the 85 sen level to RM1 last week as investors chased up the stock. It has since settled back at the 92.5 sen level.
HeiTech Padu currently holds the contract to maintain Malaysian Immigration System (MyIMMS), which is set to expire in August 2020.
The IIS will replace the current MyIMMS set up in the 1990s.
The IIS is a contract to provide an integrated solution for border and immigration control was earlier awarded to Prestariang Bhd.
Prestariang Bhd had originally secured the 15-year concession to design, deliver, continuously maintain and provide scheduled upgrades for a new and improved immigration and border control system for the Immigration Department back in August 2017.
It was initially agreed that Prestariang would receive about RM3.5bil over the 15-year period for this SKIN Sistem Kawalan Imigresen Nasional project.
Then, in December 2018, Prestariang was informed of the Cabinet’s decision to terminate the project, which took effect the following month.
Prestariang, which traded at a high of RM3.15 on Jan 2016 before the last general elections, saw its share price plunge some 85% with the change in government.
Prestariang is today meandering at the 50 sen level.
Many big investors such as businessman Brahmal Vasudevan also lost money betting on Prestariang
In January, a filing with Bursa Malaysia showed that Brahmal had ceased to be a substantial shareholder after he disposed of 22 million shares in the company, reducing his stake to 1.66% from 4.56%.
The founder and chief executive officer of private equity firm Creador Sdn Bhd first emerged as a substantial shareholder in Prestariang back in November 2016.
Wong, better known as TS Wong, is the managing director and largest shareholder of MyEG.
MyEG has almost doubled on a year to date basis at its current price of RM1.66.
Market talk now has it that MyEG, which had strong links with the Barisan Nasional government, has now sought to be aligned with the new government. MyEG is hoping to win a fresh foreign worker contract, apart from another contract to process visas for Chinese tourists.
In June last year, MyEG’s contract with the Immigration Department to carry out the government’s rehiring exercise of undocumented foreign workers ended.
Back then, the company said the contract was already scheduled to end following the government’s move to stop the illegal foreign workers rehiring programme in 2017.
MyEG, which had a market capitalisation of some RM9.5bil prior to the general election (GE14), lost more than 70% of its value following the GE14 results. Its share price, which had hit a high of RM2.89 on March 30 last year, touched a low of 68.5 sen on June 4, 2018.
This week, MyEG chairman Datuk Norraesah Mohamad has ceased to be a substantial shareholder of the company after disposing of a 23.25% indirect interest.
Norraesah who was previously a senator and Umno Supreme Council member, remains a shareholder with a direct interest of 0.75%. Wong also trimmed his indirect interest through Radio Port Limited, leaving him with a 23.25% stake, having previously held a 31.27% indirect stake according to the annual report. He also remains with a direct stake of 7.43%.
In the case of Excel Force MSC Bhd, its share price has also shot up from the 40 sen level in early July, to now hover at the 70 sen level.
Wong could be having new plans for Eforce.
On Tuesday, three of EForce’s substantial shareholders – Asia Internet Holdings Sdn Bhd, Datuk Mohamed Nizam Abdul Razak and Wong Thean Soon – exercised their warrants to shares.
Following this exercise, Wong now has increased his stake and has an indirect stake of 14.83% stake in Eforce.
Meanwhile, Datuk Jayakumar Panneer Selvam has also emerged as a substantial shareholder of EForce following the conversion of his warrants to Eforce shares. Jayakumar is known as an associate of Wong.
Following Jayakumar’s conversion of 39.03 million warrants, he now has a direct interest of 48.17 million shares, or an 8.29% stake, in the company.
Another personality that has seen stocks related to him rise, are those of Puan Chan Cheong, better known as CC Puan.
Earlier this month, Puan announced his return as group managing director and CEO after relinquishing the role in 2014, leading to speculation that he would be seeking to take the company to new heights.
There has also been recent newsflow on Green Packet’s push to mould itself into becoming a financial technology (fintech) company. For example, Green Packet’s e-wallet and cashless payment gateway firm kiplePay Sdn Bhd has registered a massive RM125mil in annual transactions last year, operating on two fronts – a cashless payment gateway for the business-to-business segment and an e-wallet for the business-to-consumer segment. Its transaction value has grown four times since its launch in 2017. It has also teamed up with Bank Islam Malaysia Bhd to offer e-payment and cashless payment services in universities and higher learning institutions in the country.
This has seen shares of Green Packet rise by more than 40% over the two week period.
Another reason for Green Packet’s share rise is the increase in value of its 32%-owned associate G3 whose shares closed yesterday at RM2.90.
This gives it a market capitalisation of RM1.2bil and puts Green Packet’s stake in G3 (including the warrants its holds) at a value of RM595.6mil.
G3 and China’s SenseTime Group Ltd are looking to build the first artificial intelligence park in Malaysia. The project is also in collaboration with China Harbour Engineering Co Ltd (CHEC), with a total investment in excess of US$1bil over the next five years.
Sources say the AI park is close to being decided, to be located in Technology Park Malaysia, Bukit Jalil.
No longer easy for plush govt contractsHowever, there is a concern that some tech stocks are running ahead of themselves.
For example, the recent run up in tech stock prices is not based on any immediately visible positive change in earnings of most of these companies.
True, some of these companies are embarking on their own IT projects which can potentially generate significant revenues and possibly profits.
However, investors banking on tech stocks which are hoping to secure plush new government tech related jobs, caution should be exercise.
In the past, stocks enjoyed strong buying interest when such contracts were inked. However, under the new government, it is no longer going to be that easy. For one, it is clear that the government will only embark on IT projects that are firmly needed and in accordance to the tight budget the government is operating under.
Gone are the days when projects proposed by the private sector would be taken on with lofty payouts or profit-sharing deals. In fact, since the new government was formed, not a single large IT contract has been issued, indicating that the tech sector is no longer as lucrative as before.
What is worse is that contracts can also be cancelled. Aside from the SKIN project there are others.
For example, sources say that one international open tender that had been conducted by the government for the provision of cargo scanners for the Customs Department has since been cancelled.
According to sources, this happened after all submissions closed at the end of May, with close to 30 companies having been involved in submitting tenders.
The project was to install state-of-the-art scanners which would help detect smuggling activities at the customs department’s locations.
“It is strange that no good reason has been given for this cancellation. Firstly, the sudden cancellation is not appropriate because the tender committees have completed all the technical and commercial assessment.
“All the pricing, and other important information has been disclosed.
“Hence it is unfair and even wasteful to re-tender with the same specification again,” one source says. The source adds that delays in the installation of the scanners also delays the government’s efforts in snuffing out smuggling activities in Malaysia, which in turn would impact the government’s tax collection coffers.