Is Aerodyne a scam?

Not with Petronas and KWAP as investors. But Jho Low got KWAP and government and international investors in his 1MDB and SRC scam.

In late November, Edge Weekly carried the story of Aerodyne Group talking to several exchanges,  including foreign ones to list the company's shares. Unfortunately, the name Aerodyne and local Private Equity game does not exude confidence. 

Despite Aerodyne successfully attracted funding from local and foreign sources, the possibility it could be just another Jho Low-like scam have not gone amiss. Rumours pervading the economic recovery initiative, Penjana Kapital and the Private Equity firms added to the scepticism. 

Aerodyne is too associated with the failed kereta terbang (flying car) which Mahathir promoted as the third Malaysian car project upon his return as PM the second time around. 

Its probably the storyline for the RM250,000 start-up tech company to attract funding.    

More so, established online businesses such as Grab, Shoppe, and Lazada are cutting cost and hiking prices to cover for revenue and profit not meeting the hyped expectation.

Flying car

The reservation with Aerodyne is not so much the project is not a car per se, but a drone.  Those familiar with drone technology knew it from the onset. Neither is it due to unfamiliarity with new technologies, in which drone technology is not totally new. 

For one, Malaysians are tired with Mahathir's past car projects. It was never genuinely driven to develop technological capability, but more a Malaysia pun Boleh marketing gimmick. The mindset driving the national car was protectionism, government subsidy and low labour cost narratives. 

Behind his big ideas, its seldom quick buck schemes for immediate sales and public listing as exit plan. There were no willingness for a comprehensive masterplan and the painstaking due process to acquire knowledge, do research & development, and move up the learning curve.  

As far as the flying car or passenger drone, there was already an abundance of prototypes globally. Below is a 2-year old video of a model claimed to be the first in the world:

There are more models on You Tube here.

 

So, Malaysia is late in the race and the third Malaysian car ploy could be intended to bring the manufacturing to Malaysia. 

However, cheap labour manufacturing sales pitch is not attractive anymore. It will be, but another of Mahathir's list of projects that will not sustain without government support in perpetuity.    

Till today, the suspicion remained of a scam behind the flying car project. It is difficult to be convincing with Minister-in-charge, Redhuan Yusof not an industrialist, but an anything-goes-businessman.  

Aerodyne did clarify after much hurrah by the public that there is no public funds involved and it was self-funded. However, no prototype, but only miniature model displayed. It leads to the belief it was Aerodyne's gimmick to get close to the then PPBM-led government and seek government funding. 

Nothing wrong there.

Back in 2020, KWAP was one of the early investor and late last year they received another US$30 million capital infusion led by Petronas Ventures. Petronas was their client for the drone application for monitoring and inspection oil and gas infrastructure. 

There is talk in the market that the then PM Dept Minister for EPU, Mustapha Mohamed arranged for the company to receive Government research grant. 

However, the story Aerodyne is promoting seemed to be too good to be true. Extract from Sundaily report Sept 26th 2022 below:   

Founded in 2014, Aerodyne is a DT3 (drone tech, data tech, and digital transformation) drone-based enterprise solutions provider, and a pioneer in the use of artificial intelligence (AI) as an enabling technology for large-scale data operations, analytics and process optimisation with a presence in 35 countries.

The funds will be used to support Aerodyne’s further expansion into European, African, Latin American and South Asian territories, as well as investment into technology acquisition to further deepen Aerodyne’s technology edge and launch Aerodyne’s entry into the advanced air mobility space.

Aerodyne’s flagship precision agriculture solution is powered by in-house developed AI capabilities, with more than 300,000 secured effective hectarage for major industry players in Malaysia. Part of the funds will be utilised to support Aerodyne’s agriculture scaling up efforts and bringing this solution into Indonesia and India.

A large scale commercialisation plan for Aerodyne’s advanced air mobility solution is also already underway. This solution includes the use of heavy lifter drones, which can replace the more costly traditional methods and is well-suited for oil & gas operations such as shore-to-platform and platform-to-platform deliveries. This also accelerates large logistic operations such as delivery of medical supplies in rural areas, and potentially in urban air mobility where fast and cost-effective mode of transportation can be provided in near future.

It seemed to be promotional materials provided to the media by the company. 

With some familiarity on agricultural drone, yours truly find their claim to manage 300,000 hectares questionable. 

For one, few local plantation companies is heard to have withdrawn their contract. Aerodyne could not deliver on their undercut price and other drone operators refused to takeover their contract at the previously prescribed price.  

Going listing?

With their suspiciously gross exaggeration as the world's largest drone solution provider and reported net loss of RM37 million with revenue tripled to RM64 million as at 2021, Aerodyne seemed to be hyping themselves up as a much sort after company for listing. 

The Edge reported below:         

Aerodyne Group in talks with three stock exchanges over listing

Intan Farhana Zainul/The Edge Malaysia

November 29, 2022 14:00 pm +08

MALAYSIA-based Aerodyne Group is looking to raise between US$100 million (RM453 million) and US$200 million by next year. With an initial public offering (IPO) on the horizon in 2024, it is in talks with at least three stock exchanges to list its shares. They are the US’ Nasdaq, Tokyo Stock Exchange and Bursa Malaysia.

Over the years, Bursa has seen fewer mega IPOs coming into the public market. It was reported that health supplement producer DXN Holdings Bhd, which plans to raise a whopping RM1.8 billion from the local bourse, is postponing its IPO to next year because of weak market sentiment. The last mega IPO on Bursa was in March, and saw Farm Fresh Bhd raise almost RM1 billion.

Aerodyne founder and CEO Kamarul A Muhamed says the outfit, the world’s largest drone company, has yet to decide which bourse to list on, but it may consider a dual listing.

“It could be a dual listing, and a decision would be made in the best interests of our shareholders. But, of course it will depend on the market condition,” he tells The Edge in an interview.

But with the potential fundraising prior to the IPO, the start-up is set to become the country’s second technology unicorn after Malaysia-headquartered used-car platform Carsome Group, which has a valuation of US$2 billion. However in June, it was reported that Carsome had delayed its dual listing plans in Singapore and the US on concerns that deteriorating macroeconomic conditions could dent its valuation. Carsome was reportedly looking to raise US$300 million to US$400 million for its upcoming IPO on Nasdaq that was scheduled for this year.

Kamarul says Aerodyne is also in talks with a number of investors, both locally and overseas, for the upcoming fundraising.

“We are also eyeing at least three acquisitions in North America, South America and Europe, as well as expanding aggressively in India and Indonesia, especially in the agriculture sector,” he adds.

Data from the Companies Commission of Malaysia (SSM) shows Aerodyne turned a net profit of RM4.17 million in the financial year ended Dec 31, 2019 (FY2019), but slipped back into the red with a net loss of RM6.99 million in FY2020 and a net loss of RM37.11 million in FY2021.

The company has seen significant revenue growth over the last three years, hitting a record RM64.22 million in FY2021 and tripling the RM24.3 million revenue recorded in FY2020. It posted revenue of RM24.72 million in FY2019.

Kamarul says, as a tech company, Aerodyne needs to be aggressive in research and development activities and that new products that have been introduced have an incubation period before they reach economies of scale.

“When we went into the agriculture sector two years ago, it took us almost one year to get people to use our service because it was new to the market. Now the agriculture segment makes up about one-third of our overall operation and it is already profitable,” he says.

Kamarul points out that Aero­dyne’s foray into the agriculture sector was accidental as the Covid-19 pandemic and the ensuing lockdowns had delayed some of its projects.

“Now we are working to duplicate our services in the agriculture sector to India and Indonesia,” he says, adding that Aerodyne not only provides surveillance and project development monitoring, but it also has the technology to provide information on the condition of the soil and trees to plantation companies.

Aerodyne was founded in 2014 to provide drone surveillance services. It raised US$30 million in its latest financing round — Series C — increasing its valuation to close to US$700 million.

It was reported that one of Aerodyne’s long-time clients, Petroliam Nasional Bhd (Petronas), led the funding round. The capital injection also included a follow-on investment by Kumpulan Wang Persaraan (Diperbadankan), which had invested in Aerodyne in 2020.

It is worth noting that Aerodyne is also backed by Axiata Group Bhd, Gobi Partners, China-based North Summit Capital, Indonesia-based Kejora Capital and Japan-based Drone Fund.

Aerodyne is currently the world’s leading drone solution provider with a footprint in 35 countries. Kamarul recalls that the idea to start the company came after he was assigned to track ship movements via helicopter for a local company in Russia.

“I thought the whole project was too costly and I suggested the company opt for drones as an alternative. It cost me RM250,000 and I used my own money. It was a nerve-wracking experience as I had to fly this drone over the sea. At that time, a drone would make an emergency landing when it was running out of battery,” he says.

The project proved to be a success and, as they say, the rest is history. Aerodyne was immediately hired as a vendor for several megaprojects such as the Petronas Pengerang Integrated Complex in Johor and Menara 118 in Kuala Lumpur to provide project updates and progress.

Fast forward eight years, Kamarul says the company has acquired 16 companies globally, which helped to expedite its global growth, including in Australia, Indonesia and the Middle East. “The most challenging part is talent. Most of these acquisitions were for us to obtain talent fast and drones were a relatively new industry at that time.”

According to a report by Drone Insight, Aerodyne is ranked first globally among remote sensing drone service providers with more than 1,000 employees, followed by Japan-based Terra Drone and UK-based Cyberhawk.

According to Precedence Research, the global commercial drone market is expected to be worth US$504.5 billion by 2030, from US$24.39 billion in 2019, and is poised to grow at a compound annual growth rate of 46.04% from 2022 to 2030.

It says the commercial use for drones includes surveillance and monitoring, mapping and surveying, precision agriculture, as well as inspection and maintenance. Kamarul points out that most of the company’s drones are self-flying, which is the ability to perform aerial manoeuvres without a human at the controls.

To cater to the growing demand, he says Aerodyne has started to manufacture its own drones. “There was a supply chain crunch for the drones because of the Covid-19 pandemic. Most of our drones are used for the agriculture industry.”

Apart from agriculture, Aerodyne is also involved in surveillance and monitoring of infrastructure assets, including for telco towers, oil and gas fields, solar plants, roads, wind turbines and power grids. The company is also in the business of commercialising drone delivery, which is currently in the pilot stage.

“Going forward, our focus will be on the agriculture industry, and tapping the drone mobility sector too, but it won’t be in the last-mile segment as the market here is not ready yet,” Kamarul says.

For instance, in South Korea, last-mile delivery companies have expanded their delivery services to include drone delivery for online orders of items such as cup noodles, desserts, lunch sets and beverages, all small items that weigh less than 5kg.

Agricultural drone

For all likelihood, Aerodyne have core competency in asset tracking and monitoring, inspection and maintainence of infrastructure.

But not in the area of agriculture. Furthermore, they claim their foray into agriculture drone operation is by accident due to Covid. 

Business intelligence sources claimed Aerodyne rely on China company, DJI for technology support on agriculture. Below is a 5-year old video of DJI drone for basic understanding of some of the basic capability of agricultural drone:  

The DJI drones for agriculture is still limited to doing area mapping, and aerial spraying. 

It has not reached to the current level of advancement and sophistication to undertake plant count, and plant health analysis. 

Its smart farming application is still limited and far from the full operational capacity to be environmental friendly and achieve commercial optimisation. 

This is not in any way a put down on Aerodyne. Each company has their own SWOT and business segment to operate in. 

Questions

However, the perception and conversation surrounding Aerodyne raised the following questions:

• Why are they overselling themselves? 

• Is the listing so critically important for the company or its a plan for a complete exit? 

• For a company with big plans and expansion by an acquisition trail of 16 companies in its 8 years of operations, why should they pull out before the business start to bear fruit and consistent cashflow generated? 

• Does it have to do with PPBM not being part of government?

• And, most disturbing and it is still a rumour making its around, is there any truth that Aerodyne applied for RM100 million grant from government, but was approved for RM200 million? 

• Does Aerodyne have a role similar to that played by MACC suspect, Adam Radlan Adam Muhammad, who is cousin to Muhyiddin's son-in-law Adlan Berhan of 5S fame?  

If so, the listing could suspiciously be a scam. It is not made up and ill-intended aspersions against the company, but genuine concerns.