Amongst the global race towards creating the “best” electric vehicle, this has led a surge in demand for semiconductor related products, especially in terms of automotive related counter. Apart from it, the EMS, E&E sector is also experiencing backlog orders coming mainly from oversea clients. Do you see the problem here? We only focus on oversea companies. How about our local unsung heroes?
Today, I would like to share with you this little undervalued gem that is listed in Bursa Malaysia, ARB Berhad (KLSE: ARBB). What is so special about this company?
ARBB started with a humble beginning in the timber business. It was an unfortunate but crucial turning point in which ARBB had sustained major problem in maintaining their business. This is where they invited the white knight of the company, Datuk Larry Liew into the company to completely turnaround the company into a unique technology in Malaysia. It is also important to note that ARBB was reclassified under the technology sector in April 2020, this is due to Datuk Larry’s endeavour in turning the company around.
So how does ARBB perform after the grand transformation into a technology company? Please take a look at the photo attached to see the company’s turnaround.
We noted that the company had changed from a loss-making timber company to a very profitable technology company. But what kind of magic are being casted onto ARBB? Now, we will have a deeper look into the company’s business background.
ARBB diversified into the provision of IT services, or we could call it providing services in terms of enterprise resources planning (ERP) as well as internet of things (IOT) solution. In layman terms, ERP basically is a one-stop solution for businesses to manage their inventory level, costs, production efficiency, and to a certain extent, even to predict potential downtime in the production line(s). And having a on-the-ground study with several business friend of mine who had a joint-venture with ARBB, they are all satisfied with their ERP system.
Now you might think ARBB is in the game to compete with the big boys such as SAP, Oracle, Intuit Inc. FIS Global and so forth in the ERP segment, right? Fortunately, that is not the case as ARBB had a unique proposition in the ERP market. Currently they neither providing the source code, which in layman term the base coding backbone of a software or they are selling the ERP software directly. But instead, they partner with small & medium enterprise and form a joint venture (JV) with them to unlock their value by boosting their sales. This requires the company to have a deep understanding on their partner, and being one of the local player in Malaysia, ARBB definitely have the edge in this sense, and ARBB’s clients would also enjoy a certain level of costs saving as they might shy away from the big ERP software provider.
How does ARBB does it? It remains as their secret ingredient to their business. You may refer to their current projects on hand up to June 2020 from a report issued by MIDF.
ARBB had also shown resilient business model as they are able to maintain their profit at the level of 6 – 8 million Ringgit Malaysia. However, it is also important to note that this is not the end of their growth, but rather a beginning of the hyper growth of ARBB!
Based on the in-depth study of an advance level of investor in the forum, he/she mentioned that at the time of ARBB issuing the ICPS would be 67.2 million shares, and the maximum dilutive effect of the ICPS, in which the total amount of it is 1,008.2 million shares, assuming all ICPS are fully converted by paying 20.0 cents of exercise price and none of them are exercised via converting multiple ICPS together into 1 mother share, the new NOSH of ARBB would be 1,075,350,000.
Let’s take a step back and calculate ARBB’s valuation by using FYE 2019’s financial data, in which they achieved 32.8 million Ringgit Malaysia in net profit in the said financial year. That would result in an EPS of 0.0305 per share. On the date of writing this piece of analysis, ARBB’s share price is standing at 0.275 per share, and that would give the company a PER of 9.016.
Bear in mind, this would be the MAXIMUM dilutive effect and conservative profit level of ARBB, I have not factor in growth for this company.
Based on the top 9 peers’ comparison as per noted by Refinitiv's Report, ARBB’s closest peers are having a PER of 28.3 times. In other words, ARBB is grossly undervalued by 68%. As I mentioned previously, I had not factor in the growth prospect of their highly scalable ERP business as well as their hidden IOT gem. So, what are stopping investors from buying this company? I’m not too sure. Perhaps investors generally would prefer to chase high on a company rather than sit patiently and wait for the fruit to fall into their lap.
See you guys at 30 cents on this counter this week!
https://klse.i3investor.com/blogs/HIDDENGEMLIST/2021-01-19-story-h1539410387-The_Unsung_Hero_Amongst_All_Technology_Stock.jsp
