I
would play devil’s advocate so that everyone could have an interesting
discussion and look at other points of view. I see many frustrations and
doubts arised among retail shareholders on why despite good financials
recorded since diversifying into ERP and IoT solutions provider, ARBB
share price is not stagnant, but declining. And this Covid-19 pandemic
has shifted the conventional way of doing business. Businesses
are now looking into automation, adaption of technology such as AI, IoT
and ERP into their global supply chains as well as to reduce human
errors, and for better overall financial control cum decision-making due
to increased traceability and visibility. This should bode well with the prospects of ARBB as it is in the sweet spot to thrive. But why is it stagnant?
Another
debate is why the company is not declaring any dividends despite its
commendable results since Q4 FY2018. I believe many people may not
understand the business model of ARBB, not to mention how it works. It
is moving away from traditional ERP pricing model and market directly to
the SMEs, a new adoption from how big players like SAP, Oracle and
Microsoft would have done. Under
their revenue-sharing model, ARBB will provide the necessary
investments required to set up the ERP platform while the partners need
only to impart their business know how. Nonetheless, in the initial
years both parties have agreed to plough back the entire profits for
reinvestment purposes and that is why no dividend payments is expected
in the foreseeable future.
Another view
to exchange here is on the quality of audit rendered by RSM Malaysia.
The question raised is whether RSM would jeopardise their audit quality
solely for that audit and non-audit fees of approximately RM68k and
RM36k respectively for FY19. Does it make sense for such reputable
global audit firm to jeopardise their reputation in exchange of such a
small fee? An audit partner of RSM could be making as much as RM50k per
month and an audit failure could result in their license with Malaysia
Institute of Accountants ("MIA") to be revoked as well as immediate
cessation in practice. From a risk return trade off perceptive, this risk for audit failure is too high as compared to the return they received.
Some background check on RSM:
Regardless
of their fundamentals, there may be plenty of times when a company
meets or even exceeds analysts' expectations, provides solid guidance,
and still sees the share price keeps falling. When this happens, then supply, demand, and trading factors may come in play and be the catalyst.
It
could be related to noise traders who are non-professional investors
such as mom-and-pop investors. Not to forget, technical analysts come in
play too. Noise traders do not analyse the fundamentals of a prospective investment, but instead trade based on news, technical analysis indicators or trends.
They are often thought of as impulsive and may overreact to good or bad
news. Hence, if ARBB begins to sell off after a positive earnings
report, it will lead to subsequent selling by many of this classes of
investors.
Another
possible explanation is the present shareholding of Dato' Liew Kok
Leong. As at 18 August 2020, he holds only 12.1% and 1.3% direct and
interest interests in the ARBB. He has yet to reach a controlling stake of 33% that allows him to veto or overturn decisions made by existing board members.
Nonetheless, as at 18 August 2020, he owns direct and indirect 146.26
mil and 161.66 mil of ICPS respectively, that could boost his collective
holding to 34.1% upon full exercised to shares of ARBB.
|
Dato' Liew Kok Leong (DLKL")’s holding in ARBB |
|||||
|
Date
|
No. of issued shares
|
Direct
|
%
|
Indirect
|
%
|
|
18/2/2020
|
292,808,700
|
17,552,165
|
6.0%
|
5,569,700
|
1.9%
|
|
18/8/2020
|
432,901,049
|
52,552,165
|
12.1%
|
5,569,700
|
1.3%
|
|
After front loaded conversion of the ICPS |
1,074,767,500
|
198,816,622
|
18.5%
|
167,230,615
|
15.6%
|
|
|
|
|
|
|
|
|
Amount to be raised from 18/2/2020 to after front loaded conversion of the entire ICPS (RM) |
156,391,760
|
||||
Also, many were complaining on the conversion of the ICPS but try to understand the bright side of the story. The Company is growing and need substantial cash to accommodate its growth strategy, so it is either for it to borrow from the banks (and incur additional interest cost, subsequently increases the cost of doing business) or from the new issuance of share capital (i.e. rights issue, private placement, ESOS, ICPS etc). Please take note, issuance of new shares from the exercise of ICPS is not a bad idea after all, as the Company is still getting RM0.20 for every ICPS exercised and potentially receive RM156.39 mil, assuming full conversion of the ICPS since 18 February 2020.
All in all, my take on this is if a stock holding is part of your long-term portfolio, than this might represent a viable investment opportunity at a relatively low price rather than selling with the crowd. However, for those traders or mom-and-pop investors, it could be a long and arduous journey for them as there are still 641.87 mil ICPS that have yet to be converted into shares.
Time will tell whether the company could generate good operating cashflow over time. But one thing for sure, as long as the company could forge more collaboration with high quality SMEs, it will sustain its growth trajectory. LASTLY, IGNORE THE NOISE AND FOCUS ON YOUR ANALYSIS. RESULTS WILL SILENT THE NOISE.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions and not a buy or sells call. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
https://klse.i3investor.com/blogs/TimelessInvestment/2020-08-23-story-h1512480319-ARB_Berhad_ARBB_The_X_Files.jsp
