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HLBank Research Highlights

Author: HLInvest   |   Latest post: Wed, 19 Feb 2020, 9:10 AM

 

ARB - Transformation Is Bearing Fruits to Generate a 117% Surge in FY18-20 Earnings CAGR

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In anticipation of another positive 3Q19 results in Nov, ARBB’s prices had rallied 20% to RM0.36 from YTD low of RM0.30. We like ARBB, premised on its emphasis on recurring ERP and solar projects, and its recent venture into IoT business after transforming from a multi-year loss-making timber related business. If executed well, ARBB is expected to yield an impressive growth of 140% earnings CAGR from FY18-20, riding on the YTD jobs secured ~RM250m YTD and numerous MOU and MOA business contracts estimated at ~RM1.4bn in June 2019 with local and overseas clients. Valuations are attractive at 0.8x P/B (vs 1Y avg 0.9x) and 19.2x FY20 FD P/E (vs 1Y avg 3.5x), supported by 5sen net cash/share and 0.11x PEG. The stock is expected to advance further in the short term towards RM0.46 amid the rounding bottom formation and bullish downtrend line breakout.

Business profile: From a multi-year loss-making position with its timber related business, ARB has been diversifying into IT solutions business in 3Q18, mainly involved in the business of IT and software solutions, trading of computer hardware and software, system integration, as well as enterprise resource planning (ERP) development and implementation in Malaysia or worldwide. ERP solutions are enterprise software platforms that electronically capture, store, manage and process information in real time.

Bullish signs ahead amid the rounding bottom formation and downtrend line breakout. After forming a saucer bottom pattern near the YTD RM0.30 recently, ARB finally staged a long awaited downtrend line breakout from RM0.51 (1 Aug) high yesterday. The two positive patterns could potentially kick start a new upswing soon, supported by hook-up in technical indicators. Taking out the immediate resistance at RM0.38 (SMA 200D) would spur prices higher towards RM0.40 (50% FR) next before reachng our LT objective at RM0.46 (76.4% FR). Supports are pgged at RM0.335 (SMA 50D) and RM0.325 (mid BB). Cut loss at RM0.315.

 

Source: Hong Leong Investment Bank Research - 30 Oct 2019

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