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Hidden Gem: An I.T. Powerhouse In The Making
Malaysia Perspective | 16 February 2009
By:

Unperturbed by a slowing economy and the perceived intense competition within the Information & Communications Technology (ICT) industry, TechnoDex Bhd is finding opportunities in niche markets to carve a name for itself.

The Multimedia Supercorridor-status company, calls itself a business technology specialist company, preferring to distance itself from being known as just another IT player.

“The ICT industry is very saturated and the public generally assume that an IT company
is merely involved in selling hardware. Their awareness of companies that deal in ‘how to use IT’ is very limited,” said TechnoDex’s chief operating officer, Heng Ling Jy.

“Our business involves helping our clients to manage information. Our value is not easily recognised and needs to be discovered. We are confident that the investing public will
become more knowledgeable and discover this. Last year, we were busy cultivating our business and this year, we expect a harvest.”

Despite the dour economy, TechnoDex has been savvy enough to recognise that it cannot depend on government contracts– which form the main portion of its revenue base – for continued growth. “We needed to diversify into other portfolios: it is the survival of cash flow,” she explained.

Online games ventured into by TechnoDex
Online games ventured into by TechnoDex

Online Game

The company is completing the acquisition of 33% equity interest in Hitone Digital Interactive Technology Co Ltd, a Shenzhen-based online games developer for RMB10m (equivalent to RM4.5m). Hitone runs an online gaming community called Childhood , which is acclaimed for being a “green” game as it does not contain any negative elements such as violence. In its pilot run in mid-2007, the game built up a community of over one million players.

China’s online gaming industry was estimated to be worth about US$1.04b in 2006. It is expected to grow to US$3.9b by 2010. This growth will be powered by an increasing number of Internet users in China and improving infrastructure.

“Online games are also cheaper than game consoles,” said Heng. “When the economy is down, people will seek more economical forms of entertainment. Even 1% of China’s population is a sizable market. We foresee even better performance from this channel, some RMB10m in value”.

The ICT industry is set to continue growing despite an uncertain economy. The National
ICT Association of Malaysia (PIKOM) estimated the industry would expand to US$14.1b this year, from US$11.4b in 2008. This growth will be driven by greater adoption of ICT by the government and local businesses investing in various technologies.

“To sustain growth and maintain a high quality of delivery, companies have to invest in ICT and gain an edge. It is just a question of how and to what extent they will automate,” Heng observed. “Enterprises may also delay their decisions or require more justification for their budget.

“We foresee the government taking the lead in stimulating the economy. So, there will still be projects available for tender,” she said.

Niche Markets

Nonetheless, TechnoDex will continue to diversify into niche markets that can be implemented quickly and involve easy collection. The company ventured into human resource management software, currently distributed by its subsidiary Evodex Solutions Sdn Bhd. It is also in the process of acquiring a 51% equity interest in HK Comp Software Standards (M) Sdn Bhd, for RM5m.

HK Comp provides software systems that automate the documentation process for ISO compliance. This system is approved by the Standards and Industrial Research Institute of Malaysia (SIRIM) and regarded as compliant with the audit requirement of ISO certification.

With the acquisition, Techno- Dex would become a first-mover and major player in the ISOrelated market. “There are very few competitors in this niche, unlike enterprise resource planning (ERP) software which is highly competitive,” Heng explained.

TechnoDex is still open to other opportunities. “Our acquisition policy is borderless. Some China companies have approached us to partner or collaborate with them,” she said. For the time being, the company is concentrating on completing
the deal with HK Comp.

Although fast turnaround projects have lower margin, they can generate cash flow, which is important for a company’s survival. “We should see the benefits of these acquisitions and new contracts in 2009. A large portion of our revenue will come from the government sector as per previous years, but we anticipate fewer new contracts this year due to the economic downturn. Online games will make a sizable contribution to our total revenue in the next one to three years,” Heng said.

Strategic Difference

Many ICT companies come and go, she said, because they engage freelancers to create applications for their clients. Each of these is created from scratch using methodologies that varied from one programmer to another. The resulting application may not work with other applications offered by the same company, and worse, a subsequent version of the same software may not be compatible with the previous one.

“Continuity is needed for companies to have confidence in their solutions provider,” she said. “The solutions provider must have a proper structure that improves efficiency.

“There is a lot of duplication of work for different projects. These companies do not leverage on the work done in past projects for use in future projects. They cannot shorten their time and costs,” she said.

TechnoDex avoids these pitfalls by using open-source technology and having a strong in-house development team in Malaysia and Suzhou. The TechnoDex Platform is Malaysia’s first home-grown open source web application platform, similar to other application platforms offered by Microsoft and Oracle. It can be likened to a set of building blocks or Lego pieces.

Programmers can reuse the various “blocks” or modules in designing an application. They do not need to create everything again from the ground up. By using open-source architecture, TechnoDex can also incorporate newer technologies into their products.

“We started with a 100% inhouse team, and even today, with 88 staff in total, we only engage contractors for 10% of our work,” said Heng.

The economic downturn could be a blessing in disguise. Many talented people moved to Singapore during the boom times. “We are hopeful some of them will come back to reduce the market shortage of experienced manpower. Until then, we will just have to keep streamlining our processes,” she said.

TechnoDex plans to raise about RM4m from a private placement exercise of 17.8m shares, after receiving regulatory approval end-December. This money will be used for day-to-day operations and marketing expansion.

Moving Up

The company decided not to declare any dividends for FY08 ended June 30, 2008 as it is keeping its cash in preparation for a move from Mesdaq to the Main Board. “We are awaiting news from the Securities Commission (SC) on the specific requirements for listing in the unified Main Board,” Heng explained.

The SC is expected to make a formal announcement on the implementation of the unified board in the end of this quarter. Prime Minister Dato’ Seri Abdullah Ahmad Badawi announced in March last year that the Main and Second Boards of Bursa Malaysia would be merged.

TechnoDex is keen to move out of Mesdaq due to poor liquidity issues. “Investment houses have told us they are limited in the number of shares they can hold for Mesdaq-listed companies. Even when they like our company, they cannot invest heavily in our
stocks. So, we have to move up,” Heng said.

To underline that statement, TechnoDex had 578 public shareholders and 46% public shareholding spread, as at Dec 31, 2008. This complies with the minimum spread of 25% but not the 1000 shareholders requirement. Bursa Malaysia has given the company a six-month extension, until April 1, to comply.

As at Jan 30, 2009 TechnoDex closed at 24 sen.


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