Edaran moves ahead on ex­pec­ta­tions

The Star Malaysia - StarBiz - - Short Position -

EDARAN Bhd, a loss-mak­ing in­for­ma­tion tech­nol­ogy (IT) ser­vices com­pany, re­ceived a life­line ear­lier this week from the Cus­toms Depart­ment.

The stock shot up sig­nif­i­cantly this week after the com­pany se­cured a two-year RM150mil Cus­toms In­for­ma­tion Sys­tem con­tract. Edaran clearly spelt out that this deal would add 16 sen to its earn­ings per share.

While the project was not the first gov­ern­ment con­tract se­cured by Edaran, it was prob­a­bly the most lu­cra­tive one to date. The project com­menced on Sept 1.

Prior to the lat­est award, Edaran had done jobs for the other min­istries, pub­lic univer­si­ties and the In­land Rev­enue Board.

While the com­pany has es­tab­lished a solid track record of se­cur­ing work from the pub­lic sec­tor, it has yet to prove that it can make a profit.

For the past two years, the com­pany has been mak­ing losses de­spite the dou­bling of its rev­enue. In the fi­nan­cial year ended June 30, 2017 (FY17), the com­pany halved its losses to RM2.3mil, or about four sen a share on a rev­enue of RM84.7mil.

Not be­ing able to make a profit from car­ry­ing out project work can mean a few things - that the com­pany had costed the project too low, or it was not able to man­age the pro­jects ef­fec­tively to meet the orig­i­nal pro­jec­tions of prof­its. Or there could be even other rea­sons why no prof­its are be­ing re­ported.

Edaran says the Cus­toms job will have a “sig­nif­i­cant” im­pact on its earn­ings in FY18.

In­vestors are al­ready bet­ting that Edaran would be able to turn around its ail­ing for­tunes and even­tu­ally join the likes of home­grown IT firms that have made it big such as Prestar­i­ang Bhd and MyEG Ser­vices Bhd.

Edaran’s share price has tripled in value from 21 sen last week to end Fri­day at 66 sen.

There is no doubt that the com­pany can han­dle big jobs. How­ever, the only thing that would mat­ter to in­vestors now is whether it can de­liver a de­cent profit as promised while do­ing so.

Weed­ing out leak­ages

BIL­LIONS of ring­git of al­lo­ca­tions to var­i­ous seg­ments of in­di­vid­u­als and com­pa­nies have been pro­posed in Bud­get 2018. The in­ten­tions are good. Con­sider some of the pro­pos­als: RM6.5bil to as­sist farm­ers, fish­er­men, small­hold­ers and rub­ber tap­pers; RM2­bil for soft loans to tour op­er­a­tors; RM1­bil for ven­ture cap­i­tal to boost young tech com­pa­nies; and RM61.6bil for the education sec­tor. The ques­tion is, how well will these monies be dis­bursed? Will the right and de­serv­ing par­ties get it? More im­por­tantly, will there be a layer of ad­di­tional costs in­volved, mean­ing that would ap­pli­cants of these funds be made to use spe­cialised agents be­fore they can tap these monies?

All too of­ten, we have heard of such things hap­pen­ing in Malaysia. What is needed is more em­pha­sis on best prac­tises on how al­lo­ca­tions are dished out. The top devel­op­ment banks around the world such as the World Bank and Asian Devel­op­ment Bank have spent years com­ing up with reg­u­la­tions on how to pre­vent leak­ages when­ever their devel­op­ment funds are be­ing dished out. So too have in­ter­na­tional aid agen­cies such as the Bill and Melinda Gates Foun­da­tion.

Malaysian agen­cies in charge of these funds should draw a leaf from these in­ter­na­tional or­gan­i­sa­tions to in­still strict rules and reg­u­la­tions to en­sure that the process of ap­pli­ca­tion and dis­burse­ment of these bil­lions of ring­git is done in a fair and trans­par­ent man­ner.

Blessed by more than enough cov­er­age?

WHEN a fire breaks out in a fac­tory and causes ma­jor dam­age, in­vestors in the stock of that com­pany will be clench­ing their teeth.

That, how­ever, was not the case with No­tion VTec Bhd. Its stock took a dive on the day of the fire that gut­ted a big part of its fac­tory in Klang, but de­fied on­go­ing pes­simism and was ac­tu­ally still trad­ing in the days after the an­nounce­ment.

What soothed in­vestor con­cern was that the com­pany, while es­ti­mat­ing the fire had caused dam­ages worth be­tween RM150mil and RM200mil, said it was more than ad­e­quately cov­ered by in­surance.

No­tion said it had in­surance cov­er­age of RM350mil for prop­erty dam­age and RM217mil for busi­ness in­ter­rup­tion of up to 18 months.

What sur­prised some quar­ters was that No­tion ac­tu­ally man­aged to get in­surance cov­er­age for a large sum, cov­er­ing its po­ten­tial losses.

The in­surance cov­er­age is even more than the value of its as­sets.

In its books, No­tion’s prop­erty, plant and equip­ment is worth RM215.4mil and its in­ven­to­ries have a book value of RM44.8mil, both com­ing to RM260.3mil.

For the loss of busi­ness that is in­sured for RM217mil, No­tion made a profit of RM13.6mil for the three quar­ters of its cur­rent fi­nan­cial year, and ex­trap­o­lat­ing that num­ber would see it mak­ing around RM20mil this year.

For it to have been in­sured for RM217mil for loss of busi­ness meant that in­surance would have cov­ered the loss of in­come for many years.

That an­nounce­ment has com­forted share­hold­ers that the com­pany is well cov­ered against the loss of busi­ness, plus the im­pend­ing cost of re­plac­ing parts of the fac­tory and equip­ment that were gut­ted in the fire.

Lucky for No­tion that it has fan­tas­tic in­surance cov­er­age.

Go­ing by the an­nounce­ment, share­hold­ers should not have much to worry about, un­less some com­pli­ca­tions arise when claims are be­ing made from the in­surance com­pany.

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