Awantec’s stand on the group’s viability is confirmed as Bursa lifts trading suspension on its securities

This article first appeared in The Edge Malaysia Weekly on May 13, 2024 to May 19, 2024

AFTER being classified as an affected listed issuer for more than three years and having trading of its shares suspended since April 26, cloud-based service provider AwanBiru Technology Bhd (KL:AWANTEC) learned last Friday that the classification had been declassified by Bursa Malaysia Securities Bhd and trading of its shares would resume on Monday (May 13).

It has only been two weeks since Bursa Securities suspended trading in Awantec shares after the group failed to submit a regularization plan, which typically involves the acquisition of a new company that results in a material change in the company’s business direction or a Raising capital leads practice.

“(Bursa’s announcement) also surprised us. Maybe someone has finally realized that we can regulate ourselves and do not need mergers and acquisitions or capital raising and that our company is viable and sustainable – the two main criteria for inclusion on the list,” says Awantec founder and major shareholder Dr. Abu Hasan Ismail.

To recap, Awantec has been classified as an affected listed company under Paragraph 8.03A 2(a)(aa) of the Principal Listing Requirements of Bursa Securities with effect from January 29, 2021, with the termination of the membership of its subsidiary Prestariang Systems Sdn Bhd in the Microsoft Partner Network on January 30, 2021.

Based on Awantec’s audited financial statements as at June 30, 2020, the revenue contribution of Microsoft’s products and services was RM139.98 million or 90.87% of the group’s consolidated revenue.

Awantec hired Bursa Securities to regulate its status. Although the latter had requested a regularization plan, the group insisted that it had a viable, profitable and sustainable business with growth prospects that justified an exemption from submitting such a plan.

“There are also a few clauses…regularization plan, which is clause 8.03A (of the Main Market Authorization Requirements). And that includes, as Dr. Abu mentioned mergers and acquisitions and a fundraiser. But within that clause itself there is a subsection that says you can seek self-regulation. This is what we understand and this is what our consultants recommended,” says Azlan Zainal Abidin, CEO of Awantec.

Maybank Investment Bank Bhd is the advisor to Awantec in regularizing its status as a concerned listed company.

Pursuant to Chapter 8 of the Principal Market Listing Requirements – Continuing Listing Obligations, subparagraph 8.03A(5), an affected listed issuer need not comply with the obligation to regularize its status if it can demonstrate to the satisfaction of the Exchange that its remaining business is viable, sustainable and has growth prospects .

Awantec applied on April 8, 2024 for an exemption from the obligation to submit and implement a regularization plan and for the removal of its status as an affected listed issuer after taking into account the improvement in the group’s financial performance. One-month extension to submit a regularization plan to relevant regulators by October 13, 2024 if Bursa Securities does not agree to the proposed waiver and removal of its status.

While losing membership in the Microsoft Partner Network was a big blow to Awantec, it didn’t stall. Instead, its subsidiary Awantec Systems Sdn Bhd was appointed as Google’s Premier Level Partner in Malaysia in August 2021.

The partnership with Google allows Awantec to be part of the government’s Cloud Framework Agreement (CFA) signed in May 2022. The CFA is one of the main pillars to drive the digital transformation of the public sector, especially through the use of the cloud network.

Although Awantec managed to replace Microsoft with Google, it wasn’t enough to stop the decline in its profits. For the financial year ended June 30, 2023 (FY2023), the group recorded a net loss of RM6.25 million, its first loss after two consecutive financial years of profitability.

Awantec remains confident in its current business – the Google partnership – and also as a provider of Skillsoft suites and other services to its customers. However, it must demonstrate that the company is profitable, viable, sustainable and has growth potential to avoid delisting by Bursa Securities.

One way to achieve this is to demonstrate profitability. Awantec has posted four consecutive quarters of net profit since the quarter ended on June 30, 2023 (4QFY2023). For the quarter ended September 30, 2023 (1QFY2024), the group recorded a net profit of RM404,000, compared to RM44,000 in 4QFY2023.

Then, in the following quarter, Awantec recorded a net profit of RM781,000, an increase of 93.32% quarter-on-quarter. For the quarter ended March 31, 2024 (3QFY2024), the group posted a net profit of RM2.14 million, compared to a net loss of RM1.99 million in the corresponding quarter last year.

Does this mean that Awantec has met the self-regulation requirement? However, there is another aspect of self-regulation – the sustainability of their business. The group said it has already told Bursa Securities how sustainable its operations are.

“From a sustainability perspective, we have secured large contracts, probably for four to five years (long term). And those are the big ones. So that’s what we showed. And from a growth perspective, if you look at our business now, everything is cloud-based,” says Azlan.

“We run analytics for Google, we run cloud transformation programs for Google (for customers using Google Suites). From a talent perspective, we have a learning management system.”

He added that Awantec has embarked on a business transformation strategy and has started selling SAGE’s enterprise resource planning (ERP) software and electronic invoicing. An ERP platform is a type of business management software that integrates everyday business processes.

Awantec already serves around 400,000 civil servants through Google Workspace productivity tools and students using the Google Classroom application. “We also provide Google Workspace services to five million school children,” says Azlan.

Awantec has also ventured into the commercial segment to tap the cloud transformation and migration market. The group is also pushing for AI services. “So we think the business is going to see quite a bit of growth,” he says.

Malaysia has recently become the focal point of multi-billion dollar investments in the data center and artificial intelligence (AI) sectors. Names like Amazon Web Services, NTT (a global infrastructure and services company) and GDS (a developer and operator of high-performance data centers) have invested in Malaysia. Then, of course, there is Nvidia’s RM20 billion investment in data centers with YTL Corp Bhd (KL:YTL).

On May 2, Microsoft announced a US$2.2 billion investment in Malaysia for new cloud and AI infrastructure, and on May 7, Minister for Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz confirmed that Google would invest in Malaysia.

“We know Google will invest in Malaysia. Since we are the public sector partner, there are many opportunities for us,” says Azlan.

Awantec shares were last traded at 25.5 sen each before the suspension, valuing the group at RM201.4 million.

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