Investor’s preference on value stock over high growth stock couldn’t be more obvious, especially in the month of May, blue chips or companies with relative strong earnings are overwhelming preferred as compared to cyclical, or growth stock. A downturn in commodities is expected to come as the pent-up demand has its limit, the supply glut is no more than an illusion of difficulty of shipping and fear-based hoarding. Palm oil, being the beneficiary of rise in price of soybean oil, could hardly see the sustainability of the price in the next 6 months.

Foreword. The company that is under our investment radar is ARB BERHAD (KLSE:7181), or simply known as ARBB. The company had transformed from a timber based, loss-making company to a highly profitable technology company. ARBB’s solid growth and low single digit PER had attracted our interest to study deeper into it.

Fundamentals. For the trailing 4 quarters of the company, ARBB had a total sum of RM43.4 million in net profit. This translate to an EPS of 7.14 and based on the LTP price of ARBB of RM0.290, the company is trading at a 4.06x PER. However, the EPS of ARBB could subject to dilution due to the potential conversion of ICPS.

Share dilution. Our calculation cited that appx 541 million ICPS are not converted yet. This indicates the potential dilution of ARBB is limited. The pro-forma dilution on EPS would be appx 4.26, which would translate to a 6.80x PER.

Technical movement. In tandem with the FMCO announcement, the share price of ARBB had fallen from a RM0.320 to RM0.415 range to RM0.290. The breach of key support of RM0.300 (e.S1) had triggered an exit for traders. However, based on the stabilization of share price on RM0.280 level (S1), it is very likely that the strong holders are accumulating during weakness.

Value on hand: An industry average PER for technologies companies under Main Board of Bursa Malaysia is appx 43.12 times. With ARBB lower-than-peer PER of 4.06x (pro-forma dilution 6.80x), there are much value to be uncovered from the investment. We recommend a strong BUY on ARBB with a TP of RM0.855 with 20.0x PER base on a more-than 50% discount on industry average.