Edaran moves ahead on expectations

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.