TechnoStorm

Digistar looks at its first foreign acquisition in the UK

IN a bid to expand its business overseas, information and communications technology (ICT) firm Digistar Corp Bhd is now looking at its first foreign acquisition - a UK firm specialising in providing broadcasting systems and solutions.

For a while now, Digistar has been talking about expanding its reach overseas, specifically towards the Asian and European markets. But as the group's CEO Datuk Lee Wah Chong tells The Edge, Digistar is finally ready to put its words into action.

We have already appointed a due diligence team to look at the acquisition of the UK firm so we're very serious about this. The UK is known for the best broadcasting companies in the world and this will help us expand within Europe and the Asia-Pacific region, says Lee.

He was unable to disclose any further details on the deal except that it would be a wholly-owned acquisition which he is hoping to complete in the next few months.

There are probably less than 20 companies in Asia and Europe that can provide a one-stop total solution for broadcasting so there are definitely a lot of opportunities for us, he adds.

Locally, Digistar is the only listed group with broadcast, telecommunication and Internet protocol television (IPTV) services expertise and also the only one with the experience in all these three areas.

This is an advantage Digistar is hoping to ride on especially when it comes to bidding for Media Prima Bhd's inevitable project to convert its television stations from analogue to digital broadcasting. "So hopefully by next year, they will start the tender process [for the project]. It would be a good project for us," Lee explains.

Following the trail of Bursa Malaysia announcements, one would notice that Digistar has been raising funds over the past few months despite being in a decent net cash position.

Based on its unaudited results for the fourth quarter ended Sept 30, Digistar is now sitting on a net cash position of around RM12.8 million.

In September, it completed a private placement of 22.4 million shares at 32.5 sen apiece, which raised around RM7.27 million for the group. Then in November, it proposed a rights issue to raise up to RM34.43 million cash.

Lee says all this is necessary given the company's business expansion plans.

Given our current net cash position, it won't be enough for our expansion plans. We're already venturing more into the IPTV segment and our central monitoring system (CMS) business is about to launch in the first quarter of 2013 so we have to anticipate the funding required, he says.

Digistar first launched its IPTV services to hospitals in 2010 and has already secured up to 22 contracts with private hospitals, a figure Lee hopes to bring up to at least 60 in the future, providing the group with a stronger source of recurring income.

But as much as Digistar tries to expand its ICT business, Lee admits there is a limit to the growth the group can enjoy.

We do aspire to be one of the top 100 companies in Malaysia but we can't do this with just our core ICT business alone. Of course I'd like to maintain ICT as our core business but we have to venture into other businesses if we want to achieve this goal.

What Lee is talking about is the group's recent venture into property development.

In August, it acquired the remaining 40% stake of its wholly-owned subsidiary Seni Pujaan Sdn Bhd (SPSB) for RM13 million. Through SPSB, the group will be launching its maiden commercial property project in Melaka called The Heritage, with a gross development value of RM150 million.

However, Lee emphasises that Digistar's property development division will not overshadow its core ICT business and that it will continue to actively tender for more ICT jobs.

At this point we have tendered for about RM120 million to RM150 million worth of [ICT] jobs. I think we stand a good chance at winning these jobs because we have the advantage of being a one-stop solution for them.

Given its disappointing results this year, it's a good thing that Digistar is being proactive about boosting its earnings.

For the financial year ended Sept 30, the group saw a 69.7% dip in net profit to RM5.9 million from RM19.5 million, registering a net loss of RM1.28 million in the last quarter of the financial year.

Lee says this was mainly due to the timing of project deliveries during the year. Given its expansion plans, however, he believes earnings should be back to the levels seen in its 2011 financial year.

Nevertheless, its share price has suffered from earnings disappointment throughout the year. After reaching a one-year high of 63.5 sen in February, the stock has tumbled as much as 51% to last Wednesday's close of 31 sen, giving the group a market capitalisation of about RM79 million.

This story first appeared in The Edge weekly edition of Dec 17-23, 2012.

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