This article first appeared in The Edge Malaysia Weekly on August 21, 2017 - August 27, 2017
THE new substantial shareholders of IRIS Corp Bhd, Datuk Rozabil @ Rozamujib Abdul Rahman and his partner Datuk Paul Poh Yang Hong, are working on the disposal of its education arm, barely a month since they took over the reins.
“Yes, I can confirm that the new management (Rozabil and Poh) is right now negotiating the disposal of the group’s stake in Stamford College. The deal is almost completed,” says an official familiar with Rozabil’s businesses.
IRIS group managing director Datuk Tan Say Jim declined to comment on the purported plan when contacted. “I have no idea,” he tells The Edge.
Tan is said to have been on leave since Nov 7, 2016. He ceased to be a substantial shareholder after paring down his stake in recent months. His shareholding in IRIS stood at 2.3% as at April 28, compared with 6.45% on June 20, 2016.
In its 2017 annual report, the group states that it remains committed to “renew our trusted identification division and divest our non-core divisions in order to focus our resources on our core strengths”.
IRIS had embarked on a diversification strategy over the years, adding property development, industrial building systems, food and agro technology, mining and education to its portfolio of businesses.
IRIS owns a 73.3% stake in Seri Stamford College Sdn Bhd (Stamford PJ), and 75.5% of Stamford College (Malacca) Sdn Bhd, according to the annual report. The other major shareholder of Stamford PJ is Stamford College Bhd (SCB) with 26.7%.
Stamford Malacca’s other major shareholders are Autron Sdn Bhd with a 20% stake, and SCB with 4.5%. Autron is an investment vehicle whose largest shareholder is Datuk Wong Sen Chiew, who owns 23% equity interest.
However, the disposal of IRIS’ interests in Stamford PJ and Stamford Malacca might not return much to shareholders as the education business is loss making, with total debt exceeding total assets.
The disposal would, however, improve IRIS’ balance sheet and allow it to focus on its core business of trusted identification.
“Scrolling through its annual report, we believe key assets to be monetised include its mining and exploration permit in New Zealand, its stake in Stamford PJ and its waste-to-fertiliser plant in Weinan, China,” TA Securities analyst Paul Yap writes in a May 18 research report.
“It will also be exiting all of its island businesses (Papua New Guinea, Solomon Island and Republic of Palau), but benefits from these are likely to be derived from an operational perspective,” he adds.
Stamford PJ and Stamford Malacca operate the Stamford colleges in Kepong and Melaka respectively. According to IRIS’ 2017 annual report, the education business suffered a total net loss of RM2.64 million.
When the stakes in Stamford PJ and Stamford Malacca were acquired, the board expected the businesses to positively contribute to the group’s financial results in the long run, but that did not turn out to be the case.
IRIS first ventured into the education business in October 2012, acquiring a 51% stake in Stamford PJ and Stamford Malacca for RM2.5 million, before it was increased to the current level in the financial year ended March 31, 2015 (FY2015).
For the financial year ended March 31, 2017, Stamford PJ had total liabilities of RM29.5 million while total assets stood at RM11.7 million, translating into a negative book value of RM17.8 million.
Meanwhile, Stamford Malacca had total assets of RM5.83 million and total liabilities of RM6.93 million, giving it a negative book value of RM1.1 million. Combined, the education business had a negative book value of RM18.9 million.
Of the RM29.5 million of liabilities that Stamford PJ has in its book, RM19.6 million is owed to its ultimate holding company. Stamford Malacca’s position is no better as it owes IRIS RM1.94 million
Trusted ID the only profitable business
TA Securities’ Yap ascribed a negative equity value of RM33.5 million to IRIS’ shares in Stamford PJ and Stamford Malacca. The education business, together with IRIS’ other loss-making businesses, are pulling down the group’s earnings and market value, he says.
“Trusted ID forms over 80% of the group’s revenue and is its only profitable division. The trusted ID division reported a sizeable revenue and segmental profit of RM247.2 million and RM45.1 million in its 9MFY2017.
“This, however, has been bogged down and overshadowed by losses within its sustainable development and education business. While trusted ID revenues have been declining, we are optimistic about future prospects as focus and resources are redirected to its core business,” says Yap.
For FY2017, IRIS’ trusted identification solutions business reported revenue of RM358.4 million and operating results of RM67.6 million.
In FY2017, IRIS secured two sizeable contracts from Senegal and Nigeria worth RM346.2 million and RM170.4 million respectively, which should help provide earnings visibility over the next three to five years, says Yap.
Datasonic Group Bhd, another trusted identification solutions provider, had a market value of RM1.53 billion as at last Friday, trading at a price-earnings ratio of 24.4 times. In the financial year ended March 31, 2017, Datasonic reported a net profit of RM62.7 million.
IRIS is trailing some distance behind, with a market capitalisation of RM395.5 million as at last Friday.
The group recorded a net loss of RM318.95 million in FY2017 due to impairments of RM261 million relating to collection issues in Tanzania and investments in the UK, as well as its islands businesses.
As impairments have already been made as a prudent approach despite efforts to recuperate the investments, IRIS will start FY2018 on a clean slate, Yap says in a June 1 research report.
“While painful, we opine impairments made during the quarter were a necessary step to take as the group begins FY2018 on a clean slate. We remain positive on its corporate restructuring plan, which we believe will unearth the value of its trusted ID division and help narrow losses,” he adds.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's App Store and Android's Google Play.