Friendly Handshake with Shareholders – ARB Berhad (7181)

Looking back at all the naysayers’ comment on ARB, it had almost become funny that they would think that the company’s rights issue will not be well received.

Yes, it triggered a kneejerk reaction during bear market, but it is time for this to subside as they had a very smooth EGM via their in-house Cloud AGM Platform ARBWeMeet.

As you can see, the EGM resulted in a super majority of investors to approve the rights issue of the company. Why are they supportive on the issuance of new shares?

To answer the question, we must first have a quick recap on their rights issue proposal. ARB will now venture into hydroponics internet-of-things or IOT solutions with majority of the funds raised. The rest of the funds will be utilized for funding for future projects and or acquisition of investments or complimentary assets.

In layman terms, hydroponics simply means a type of horticulture and a subset of hydroculture which involves growing plants without soil, by using mineral nutrient solutions in an aqueous solvent.

Why is this so important? In the trillion-sized agriculture industry, the hydroponics market size is only 1.33 billion in size, and the market share over the agriculture is ridiculously small. Don’t forgot we are still in a net human expanding market; hence food sources will become critical should anything happens in the future.

Hence, the industry is expected to grow with a CAGR of 22.52% during the forecast period, from 2019 to 2025. The growing adoption of hydroponics for indoor vegetable farming is a major factor driving the market growth. In addition, the adoption of different farming methods for cannabis cultivation is growing rapidly due to marijuana legalization in several countries such as South Africa, Canada, Czech Republic, and others, which is expected to drive the demand for hydroponics. Further, rising awareness among people about the adverse effect of artificial ripening agents and pesticides on their health is projected to increase the adoption of hydroponics systems as it eliminates the need for such products and helps to provide superior vegetables. Ease of operation and low installation cost are anticipated to drive market growth in the next few years. - Million Insights

By crops, the market is bifurcated into tomatoes, peppers, cucumbers, lettuce, herbs, and others. In 2018, the tomatoes segment accounted for over 30% market share. It is a major hydroponically cultivated crop worldwide. For tomato hydroponic cultivation, farmers use rock wool, coconut coir, or perlite as growing materials. The Asia Pacific and Europe are expected to cultivate a substantial amount of tomatoes over the forecast period.

Leafy vegetables like spinach, arugula, kale, and lettuce are gaining popularity among hydroponic growers. Out of these, red and green leaf lettuces are also major hydroponically grown vegetables among indoor vegetable growers due to their raw consumption in large quantities. Lettuce hydroponic cultivation is growing in North America due to its increasing demand from fast-food chains and households. The lettuce crop segment is expected to grow at a CAGR of over 25% during the forecast period.

Now back on ARB, why is this so important for the company?

Based on some shareholders’ feedback we see for ARB, the software nature of the company had lacked clarity and coupled with malicious intent from some parties, it is hard to structure investors confidence on the company. But with involvement in traditional business with a twist of technology, investors are likely to have a light-hearted mind to understand ARB better.

As such, the single digit price-earnings valuation will no longer sustain once investors realizes the potential company. Can you spot any similar tech related companies with low single digit price-earnings valuation?