Are You Still Denying This Company?
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett.
Had you seen this quote before?
If this is the first time you are seeing this, you had come to the right place. A lot of times, investors are smart in analysing business model, financials, technical charts, or even corporate deals to identify potential investments. But why are we not outperforming the market?
Based on a report published in 2020, a study over 15-year period had shown up to 90% of the actively managed investment funds failed to beat a decent market ROI per annum of 10% - 12%. If fund managers can’t do it, can we?
My answer is yes.
Often times, fund managers over complexed investments and relies on difficult-to-comprehend financial models to look for investments. Yet, 90% of them lost to the market. This is not to shun the fund managers, but a reminder to all to keep investment easy, and yes – stupid to certain extent.
This company – despite being ranked as 72nd out of 500 companies in Southeast Asia region for its fast growth, did not see recognition in terms of share price! Why is this happening? Perhaps, this was caused by market misconception – or fear to invest in the company.
And this company is – ARB Berhad (7181).
ARBB had ranked 72nd in the Deloitte Touche Tohmatsu Ltd’s 2020 Asia Pacific Technology Fast 500 index for its outstanding growth. I quote the from the article on Focus Malaysia:
“ARB has seen its revenue jumped by 114% year-on-year (yoy) to RM219.45 mil from RM102.64 mil for the financial year ended December 31, 2020 (FY2020) while its net profit has posted a sharp increase of 25% to RM43.46 mil (FY 2019: RM34.77 mil).
This was despite the negative impact of COVID-19 pandemic on the Malaysian economy that has led to a gross domestic product (GDP) contract by 5.6% in 2020.”
Original article can be found here: https://focusmalaysia.my/markets/arb-flexes-its-innovative-muscle-as-a-reputable-southeast-asian-tech-company/
I would also like to point out that ARBB had shown stunning growth since the new management – Datuk Seri Larry Liew Kok Leong had emerged as the executive director as well as substantial shareholder for the company.
In the latest quarterly report, ARBB had achieved a revenue of RM72.5 mil and RM19.7 mil in net profit. This is despite the challenge of COVID-19!
In short, investors for look for good companies with growth instead of over-complexing it. Next question would be – how do we value such a high growth company? 15 times P/E Ratio? 20 times P/E Ratio? Whatever your answer is, the actual valuation would throw you off guard.
ARBB is currently trading at a single digit low P/E Ratio of 5.12 times! Based on their EPS of 7.32 cents for 4 cumulative quarter, let’s run a simulation with different tiers of valuation.
15 times P/E Ratio: 7.32 cents * 15 = RM1.0980
20 times P/E Ratio: 7.32 cents * 20 = RM1.4640
25 times P/E Ratio 7.32 cents * 25 = RM1.8300
As you can see, based on our simple analysis, the valuation of ARBB should be above RM1, and yet the company is trading at RM0.380! I wonder, why is this happening?
https://klse.i3investor.com/blogs/hgedessmond/2021-04-22-story-h1564078207-Are_You_Still_Denying_This_Company.jsp
