This timber-business turned software company – ARBB had on 23^rd September 2021 announced to launch ARB Cloud Cosec, a self-developed cloud company secretary platform that will fully automate the existing company secretary services.

Just to recap, ARBB had previously engaged in the Enterprise Resources Planning (ERP) and Internet of Things (IoT) business.

We understand that in Malaysia, a lot of business are not integrated with IoT. Take land office as example, there is a recent riot for law firms to claim that the efficiency is... well, you know how government servant works.

Land office is just one of the examples that businesses are facing lots of resources wastage due to lack of integration with information technology. With the ARB Cloud Cosec, it could enable company secretary firms, public listed companies, and small & medium-sized enterprises (SMEs) to automate the whole process.

Bear in mind this does not reduce the need on company secretary, but just to streamline the whole process to benefit both parties.

Interestingly, the executive director Datuk Seri Larry Liew Kok Leong had said in an interview that the ARB Cloud Cosec to create a sustainable recurring income of approximately RM100.0 million per year for the company. Based on FYE 2020 revenue of RM219.4 million, we could expect an approximately 45% increase and when estimated with a 12% to 15% net profit margin, it could be amounted to an additional RM12.0 million to RM15.0 million increase in net profit, which is around 28% to 35% increase in the net profit level.

By right, the cloud expansion plan could increase the company’s share price by the same degree.

Currently, ARBB had an existing share base of 608.2 million shares and based on theIrredeemable Convertible Preference Shares (ICPS) calculation, the maximum dilutive effect is around 1,075,360,000 shares. I know investors are concerned about the ICPS conversion, but if we take a conservative bottom line of RM8.0 million (less than 50% of 2^nd Quarter in Financial Year 2021) and normalize for Financial Year 2022, added with the RM12.0 million to RM15.0 million, it is expected the maximum diluted EPS to be around 4.09 cents to 4.37 cents, which is equivalent to 5.94 times to 6.35 times of PER.

When compared to peers such as CENSOF HOLDINGS BERHAD  (KLSE: 5195), DAGANG NEXCHANGE BERHAD (KLSE: 4456) and/or IFCA MSC BERHAD (KLSE: 0023) who are trading at 9.73 times, 18.16 times and 19.46 times of PER, one could simply tell that ARBB had a margin of safety of approximately 40% based on the current price level.

I believe once investor fully understand the key concept of ICPS dilution, the share price would experience a premium in valuation and don’t forget, 10 times PER only equates to RM0.410 in share price for ARBB!

https://www.nst.com.my/business/2021/09/730021/arb-launches-cloud-cosec-aimed-plcs-smes-company-secretarial-firms