Highlights

Stock Analysis - BabyAce

Author: BabyAce   |   Latest post: Mon, 24 Aug 2020, 8:56 PM

 

ARBB (7181) Part 3 Business and some risk you should know - By No 1 Analyst in i3investor BabyAce - 14/8/2020

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I hope you learned something about my second article for ARBB. This article I will let you know how the business operates and what risk you should be aware of.

Business Model

ARB implements a unique business model whereby it seeks to form a JV company with its target partner, where ARB will have the major controlling interest. Under the JV arrangement, the partner will provide the business know-how, while ARB will implement and periodically update its ERP solutions. The differentiating factor that makes this business model unique lies with the part where ARB will fully bear the cost of setting up the ERP solutions. Traditionally, SMEs are reluctant (or unable) to provide an upfront hefty investment on the implementation of ERP. Thus,this arrangement will entice prospective SMEs to form a JV agreement with the company. Under the JV agreement, both ARB and its JV partner are entitled to a share of profit from the JV. However, we are made to understand that in the initial years of the venture, the profits earned will be plough back for reinvestment purposes. This arrangement creates a ‘win-win situation’ whereby both parties will be able to focus on their respective field of expertise. (this part is their collaboration with their suppliers)

For customers, they will resell the customised ERP software system and information technology outsourcing ("ITO") services.

If you are from the older generation and don't know what is ERP system and IoT I suggest you have a talk with some of your family members who are working in multinational companies to understand it further. Only by learning it, you will understand better what this company does. Usually for big companies they will use are Oracle, SAP and Microsoft. 

The environment now embraces digitalisation and technology even faster, that's why you can see their business is doing well.

Since you have a bit of understanding now, I will tell you what you should be expecting this Company do. As you know collaboration with their suppliers require investments.

Below is their financial statement in balance sheet. We start with the assets parts. The main area I want to talk about is the property, plant and equipment, other investment, intangible assets, and trade receivables and cash and bank balances.

(1)  Property, plant and equipment - Please note that every quarter now and then, you should expect to see this increase over time? Why? Because you're doing IT, so sometimes you need to buy some equipment for you to test on your software, etc. To keep it short.

(2) Other investment - This is a new item, not specified for the time being, you can take it as investment with its JV partner. I mentioned above that they provide the investments and their JV partner witll impart their knowledge.

For (1) and (2) if you see under cash flow statements for every quarter please expect things like this (it is not something new) because you need to develop your ERP system for different segments and please bear in mind this Company is growing rapidly so you need to use money for development). Cash flow from investing activities as the name say you need to purchase certain things as invesment so your company can grow. This is different compare to cash flow from operations. Cash flow from operations means in normal operation of my business how much it is making.

(3) Intangible assets - This is software and might have some licensed rights into it. It's common in IT based company.

(4) Trade receivables - This is the risk area, which I will explain in detail later.

(5) Cash and bank balances - RM38mil (cash and bank balance plus fixed deposit). This cash pile keep increasing due to the cash flow from operations and the conversion of ARBB-PA. The conversion of ARBB-PA is actually good for the Company because it gives the Company cash without some incurring interest costs. In other words actually ARBB is a form of free financing. If you see above, the cash flow from investing activity is on the negative right? My friends you need to take cash out to develop your product or not? Or course you need if you're growing rapidly. So if "Fatty Liew" keep convert his ARBB-PA you need to thank him not curse him, because it's free financing from him to undertake some development and reinvesting in the Company.

Positive cash flow from operations - No issues positive RM15mil

Having said that, in the event in the future if the Company have some borrowings, it's not a bad thing if you ask me. It's for growth. As you can see this quarter they already have net outflow of  RM19mil due to this purpose.

 

Liabilities - No big deal. Only for the trade payables, they need to manage their supplier well to defer it as long as possible. I will go into the trade receivables part and you will understand.

Key risk area - Trade receivables

Credit terms - You need to be aware of this.

Q1 2019 Report - Credit term of 90 - 120 days

Q2 2019 Report - Credit term of 90 - 120 days, with extended grace period of 90 days. Lets just take 180 days to 210 days

Q3 2019 Report -  Credit term of 90 - 120 days, with extended grace period of 90 days. Lets just take 180 days to 210 days

Q4 2019 Report - Credit term of 120 - 180 days

Q1 2020 Report - Credit term of 180 - 210 days

Q2 2020 Report - Credit term of 180 - 210 days

The financing for its customers is around 180 days till 210 days to pay, so the Company must have sufficient cash to sustain. Cash flow from operations in the future quarters might sometimes become negative, because they take in customer but customer not yet pay them due to credit terms have not reach. This is not a negative thing entirely because their main customers are SME and like I say they are growing. So in future quarters you need to take note on the operating cash flow. If you see announcement about conversion of ARBB-PA, you should not see as dilution but say thank you very much to those people because it's free financing and the Company need the cash. All of you curse the wrong person already.

So having said that, it is important to understand how the business operates and how certain things you can relate to it.

Understand business > See financial performance > Relate how the two works.

FA gurus won't be able to tell what I told you, because I have been in audit line for 6 years, real experience in auditing companies, so I can relate to how they do business. My clients really taught me a lot on this and of course with a little awareness and eagerness to learn I can achieve this thanks to them. FA guru how they do is read report but cannot link to how people do business. That's the difference.

I tell you aware meaning you need to take note, not to say this is very super dangerous, so RUNNNNNNNNNN. This share many people don't know, those that spread negativity due to you lacking information just make you losses. Have they tell you all the facts that all my 3 articles tell you? 

Dividends

Please don't ask me why this stupid Company don't give dividends? Hello, if Company is expanding rapidly and experiencing growth they won't give you dividends one la. Why? Give you dividends already how to grow fast? Company that give you dividends in general they are quite stable and most of them are rarely expanding. Take BAT as an example, not only its not expanding its performance have been terrible. I take the most easy example so you can understand. 

So everything seems good with a little risk? But why a lot of people say this is a con man counter? Oh because always goreng tak jadi? Volume a lot but cannot move one?

This you need to ask the existing holders. I will tell you in summary why this Company cannot move up.

1. Complains about auditor not doing their job well. I myself had uncovered a fraud case when I'm an auditor and the director go to jail because of that. Then I ask you one thing. Why my name is not well know one ah? If your Company got fraud case, you want to publish in newspaper one ah my friend? Of course you low profile as possible, otherwise who dare do business with you? You always see in news those news that say auditor never do job well, but I tell you how many cases we caught do you even know? Audit fee for ARBB is around RM68k in total and RM36k for non audit services. Total is only around RM100k. For such a low audit fee, the partner signing the account want to risk his/her reputation? ARBB is audited by RSM which is a respectable mid tier firm. You go ask auditors if every year their work in the same Company they auditng increase or decrease please? And I tell you auditor have lots of compliance thing to comply to.

2. The quality of the investor and shareholders. An example, glove counter investors always concern about earnings first. Share price is never an issue. ARBB investors? Day in day out complain why share price don't increase although earnings is good. There is a difference in this, maybe if you look it's the same but its not. If you have a lot of investor the character is panic sell one, do you think your share can go up? A bit a bit of drop they go throw all of their shares. You tell me. And please don't underestimate idiots ok. They may be idiots, but you never know it can be that they are very rich. Maybe good in doing certain things but just when come to shares they suck. Don't underestimate this group. Idiots sometimes can be rich while you how intelligent you are might be a poor person. Sometimes no logic but my friend that's reality.

Mentality of the existing investors need to educate them and create awareness to them, accept it or not it is really up to them. I can't change them. What I can do is to write an article to create awareness. That's the only thing within my power. If you ask me how long I took to understand the whole Company, it's two days.

What you can do if you're looking at this Company as a long term good share?

1. Educate people by sharing this article, so they will know this Company inside out. If you see people in KLSE screener, OMG I can tell you what they write is really funny. Absolutely zero knowledge about this Company.

2. Patient, patient and patient

I'm writting to give more informed facts to potential true investors, to look into the potential of this Company. By attracting good quality investor who are informed then I can expect the share price to go up in the future. If I try to keep telling people buy buy buy there is no use. The share price won't move due to the quality of investor/shareholders of inferior quality. Everyday also so negative, how it bring good to the share?

Another thing is the operator for this counter is brutal. To understand this you need to see when this new shareholder come in to the Company and from then you see the pattern of chart. If you see 2 May 2019 at the top, this operator know how to push one. The thing is they have frustate a lot of people by 2 quarter consecutively after it is out the share start dropping. It seems they are accumulating at a certain range and push a bit make people panic. You can open the chart and see for yourself if you have time. You can see a lot of angry people due to this. Because the people behave like this everytime panic sell the operator happily follow the same method. Until your mindset change, then maybe the operator will be confused a bit. Ikan bilis not always will lose to shit head operator like that, you need to change a bit of strategy.

3. Buy as low as you can to be safe. The upside is tremendous if you believe in ARBB.

Conclusion:

In any investment decision made, confirm there is a risk present. You drive on the road also got risk, you take flight also got risk. Risk is always present. What is important is put all facts together and see from that angle. Make your own decision and I wish you all the best. Please bear in mind, think carefully and rationally, don't just accept what I write, you must always be sceptical. You guys are awesome, in your own way.

PS: My comments are removed on 14/8/2020 if you guys realised. Normal conversation being removed, meaning a few things:

1. The operator saw my article and comments and paid i3investor to remove those comments made.

2. Negative people complain for whatever reason making my comments and few others dissapear. 

3. And FYI people who keep spreading negative things are the one who are not helping anything about the stock. Why would you sell when the fundamental are good? Even if you buy high, when you sell is confirmed is you're already make losses. Just see those who make comments asking ARBB to drop more. 

4. Since my comments are removed, I will surely buy more since certain people do not like what I did. What I did is just write 3 articles of facts.

Re-read my 3 articles to make sure you have a strong convinction and confidence.

Disclaimer

The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information in this article. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.

 

 

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Labels: ARBB

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Chart Stock Name Last Change Volume 
ARBB 0.245 -0.01 (3.92%) 3,359,100 

  Be the first to like this.
 
JK1818 Thanks for your analyses - very informative and well analysed (saved me some time). Don't be disheartened by the pointless comments (probably won't affect you), this is an open forum anyway- can't stop the crazies and gamblers (which will never make it anyway). Although honestly, you should encourage them - if not for them, how can we ever take advantage of oversold, undervalued companies?

Like all investments, no guarantee but ARB is worth the bet if enter by stages, take advantage of the panicky selling/profit taking (ready to lose it but upside can be huge if they turn out genuine and maintain firstmover adv, the tech valuation is a steal notwithstanding dilution). The nature of the business, its model, relative valuation and bal sheet/CF so far have been surprisingly good but the risk is whether they can pull it off and maintain long term, and it doesn't help that the new principal has a bad rep (involved in outlandish announcements in other listed co and his speed of rise is a bit suspicious). At the moment the risk-return is getting attractive.
18/08/2020 1:34 PM
BabyAce You pointed something which I'm looking at which is the risk vs reward ratio.
18/08/2020 2:32 PM


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