This article first appeared in The Edge Financial Daily on July 31, 2017 - August 6, 2017

KUALA LUMPUR: HeiTech Padu Bhd is eyeing to secure 10% of the Malaysian software testing market by 2020, as the group aims to set up a new software testing business segment.

According to International Data Corp, the local software testing market is projected to be worth US$2.9 billion by 2020, compared to US$319 billion in 2012.

While software testing is not new for the ICT solutions provider, as it forms a part of the group’s provision of end-to-end solutions, HeiTech Padu chairman Datuk Seri Mohd Hilmey Taib said the group is now planning to expand the segment into a standalone business division.

He said the group is expecting the demand for software testing to grow with the requirement for testing by an independent verification and validation (IVV) partner being made mandatory in 2016.

Hilmey said there are currently four IVV partners in Malaysia, including HeiTech Padu.

“In 2016, the government adopted a new policy, which is being circulated by the finance ministry, that stated all mission critical systems, such as those used by the Royal Malaysian Customs and the Inland Revenue Board, are to be tested and certified by an IVV partner.

“This requirement is still new and most of the systems have yet to be certified, so there is huge potential for us in this segment,” he said.

Most of the investment in the software testing venture has been for getting its employees qualified as certified testers, said Hilmey, and it costs about RM250,000 per person.

To date, HeiTech Padu has certified 20 employees, bringing the total investment to about RM5 million.

To further strengthen its credentials, HeiTech Padu is also in the midst of acquiring another certification, known as the test maturity model integration (TMMI) certification.

HeiTech Padu executive vice-president and group chief executive officer for the public sector division Ariff Mokhtar said the TMMI certification is important for the group to compete with bigger players.

“In Malaysia, there are only two software testers that are eyeing the TMMI certification. Besides us, there’s Mesiniaga Bhd. The local software testing market is currently dominated by big international firms such as Tata Consultancy Services and Accenture.

“Most of the GLCs (government-linked companies) are hiring consultants from overseas, so we want to capture that market,” he said.

Ariff added that the TMMI certification will also make it easier for the group to market its services in foreign markets.

While the software testing segment is expected to eventually be one of the group’s core businesses, Hilmey said it will take some time before the segment sees significant contributions.

“It’s still early days. We have not really been aggressive in marketing our software testing service as we need to understand how the market behaves. However, we are targeting to secure at least 10% of the market in 2020,” he said.

Meanwhile, the group will focus on delivering its outstanding contracts under its IT segment, which will continue to be the main earnings driver for the group.

Hilmey said the group now prefers to secure several smaller contracts, rather than a single large-sized contract like in the past, as the contributions from bigger jobs tend to be “lumpy”.

“We would prefer to get a few RM10 million-sized projects rather than just one RM300 million project, so that our revenue stream would be more stable going forward,” he said.

For the first quarter ended March 31, 2017, HeiTech Padu’s net profit jumped fivefold to RM2.54 million from RM456,000 in the previous year’s corresponding quarter, supported by better margins from its IT division. Revenue rose 55% to RM133.86 million from RM85.92 million.

“Following the first-quarter results, we hope to register better financial performance in financial year 2017 (FY17), driven by the managed services, data centre and disaster recovery businesses under the IT segment,” Hilmey said.

Year to date, HeiTech Padu’s share price has appreciated 61.9%, vastly outperforming the FBM KLCI’s 7.6% gain during the same period. Last Friday, the counter closed unchanged at 91.5 sen, giving a market capitalisation of RM92.62 million.