ARB BERHAD Nasdaq Spinoff – Explained

Publish date: Mon, 15 Aug 2022, 04:06 AM

Surprise for all the shareholders of ARB – the Nasdaq Spinoff is now official!

I know a lot of investors, or even the long-time followers of ARB might get a little confused by how the spin-off would work. So, I compiled some of the key notes that YOU need to know about this spinoff.

Do read carefully, this is critical for your investments!

1.      The spinoff is mainly on the IOT business segment

As you may have already know, ARB is well-known for its dual engine, namely the Enterprise Resources Planning (ERP) and IoT business. In short, all IoT related subsidiaries, be it direct or indirect, will be consolidated under ARB IOT Group Limited or AIGL.

This is the group structure for ARB post reorganisation exercise and yes, it is complicated so all you need to know is the IOT business will be reorganised and list as a separate entity while maintaining the majority of shareholdings under ARB.

2.       The dilution could range from 9% to 25%

Depending on how well received is ARB’s Nasdaq listing – which I presume the demand will be overwhelming as the listing valuation of the company will not be too high, as ARB is trading at a mere 1.73 times PER currently.

Despite no actual valuation was given under the company’s announcement, do note that the minimum listing price for Nasdaq is USD or equivalent to RM17.78 per issue share. Under the minimum scenario with a dilution of 9% of AIGL, the company is expected to raise RM17.78 million. If we do a quick reverse calculation based on 9% or 25% dilution of new shares, and using 6M FPE 31st December 2021 normalized profit of RM50.67 million, the minimum dilution listing valuation is approximately 3.89 times.

On the maximum scenario however, the listing valuation is approximately 4.68 times.

If one were to take the average PER of Nasdaq, based on data shown on macrotrends.net on 12nd August 2022, the average PER is 24.57 times.

Even if we take the median between the minimum and maximum listing and dilution scenario, which is 4.28 times PER, AIGL spinoff valuation is still ridiculously low as compared to the Nasdaq as a whole.

However, this opens up an entirely different opportunity for existing investors…

3.       A rare arbitrage opportunity

If you have yet to invest in ARB, now is your chance.

Seeing how low the price had laid for ARB, the market clearly have yet to factor in the spinoff effect for ARB on Nasdaq. Excluding the free marketing effect for the company in the vast market in United States – or should I say, globally, there is a massive probability of rerating of ARB once foreign investors had identified how cheap the holding company, ARB is trading.

Imagine this – if the Nasdaq market openly accepts a median of 4.28 times PER for AIGL, and now ARB which includes their ERP business is trading at 1.73 times PER, wouldn’t it make more sense for one to invest in the holding company level?

It is plain simple for investors to invest in the company now, given the rerating will vastly change how ARB perform. Most importantly, this will also shut the trap of naysayers in the market.

What are you waiting for?

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