This is a very long article, because I need to think of how to explain in the most simple way normal people can understand and showing facts and some solutions to your problem. Then as an informed investor, you will be able to make a better decision. And I do hope you can gain some knowledge from this so you can be as good as me in analysing companies. Let's start my friends:
The main issue for this stock it is the dilutive effect of earnings due to ARBB-PA. For those that do not know, you can convert 1 ARBB-PA to 1 normal ARBB shares by paying 19 sens. So upon conversion of ARBB-PA to ARBB normal shares, meaning the total of normal shares will increase.
So how does the increase of total shares dilute my earnings? I will illustrate for you to see based on the earning of ARBB:
Earnings / Number of shares = EPS (Please remember this)
Scenario 1 (the most actual number of shares as per now)
Earnings (I'm taking 4 quarter results which is the latest, based on PAT) = 8,484 + 6,838 + 12,787 + 8,172 = 36,402 =RM36.4mil
No of shares: 428 mil
So EPS is RM36.4mil/428mil = 8.5 sen/year
Scenario 2 (Using the Q2 total number of shares)
No of shares: 368mil
Earnings is same as above: RM36.4mil
So EPS is RM36.4mil/368mil = 9.89 sen/year
Can you see the dilutive effect?
I'm sure you can now, because 9.89 sen had become only 8.5 sen
Current PE of ARBB
As per today closing price 13/8/2020 = 31.5 sen
EPS as above = 8.5 sen (use as per today , don't use Q2 results because outdated)
Thus PE = 31.5 sen/8.5 sen = 3.7
P/E means based on current earnings, how long does it take to cover the share price. So like the above 3.7 times means, it takes the earnings 3.7 years to breakevern to the current share price.
Amount of ARBB-PA
Let's recap a bit on ARBB-PA. As we know the total of it is 1,008,150,000 units.
I also did mentioned if assuming all of ARBB-PA convert we will get a total ordinary shares of ARBB of 1,008,150,000 + 67,210,000 = 1,075,360,000 = 1.075 billion shares.
I want you to focus on the figure 1,075 billion shares. Keep it in mind.
Let us just calculate the EPS based on 1,075 billion shares based on the same Scenario 1 and Scenario 2 and let's see the results:
Scenario 3 (Using maximum number of shares, assuming conversion of all ARBB-PA)
No of shares: 1.075billion
Earnings is the same which is RM36.4mil
EPS is 3.38 sen/annum meaning EPS of 0.845/quarter.
PE we work backwards 31.5 sen/3.38sen = 9.32 times
I will now use Frontken to use as a comparative for you to compare, same fact as the above, then I will tell you my observation.
Frontken Financial Results
Earnings (I'm taking 4 quarter results which is the latest, based on PAT) = 20,329 + 17,007 + 18,199 + 19,049 = 74,584 =RM74.6mil
No of shares: 1.053 billion
EPS = RM74.6mil/1.053billion shares = 7.08 sen/year or 1.77 sen/quarter.
PE is RM3.51/7.08sen = 49.57 times
My observation is as follows: (Please refer back above for the data in case you need to digest and for reference)
Actually the solution for the dilution part is already solved, just by giving you a comparative between the two companies. People complain and complain and complain about dilutive effect but no solution. Today I will present you the solution. My No 1 Analyst in i3investor not just for look one. I give you facts, facts and only facts...and Solution. All that mention dilutive no solution for you....
1. If you have concerns about dilutive effect you can observed based on the maximum number of shares ARBB now make 3.38 sen/annum or 0.845 sen/quarter, P/E of 9.32 times. If they can maintain current earnings and assuming maximum number of shares P/E only 9.32 times la (worse case scenario for this and currently still got so many ARBB-PA also haven't convert)
2. Frontken is a very good tech company, all of you will agree with me. Maybe some of you will say, how can you compare rubbish ARBB with Frontken? If you don't know right when Frontken was RM0.15 I bought 200,000 of it the people also say the same thing and complain complain and complain to me say Frontken useless to me. I don't care that time as I'm a just a junior that time, very busy with work. 2 years fast forward after that Frontken is RM2++ I sold all of it. The profits is enough to cover for the massive losses I've made from the share market before that and Frontken made me breakeven. After that I continue to make profit till today.
Frontken today you say is very good, but during my time people tell me I'm stupid buy rubbish company. Frontken that time also don't know how to move one ok. And FYI the financials of Frontken is not as good as ARBB, its making tiny profit only. I'm using Frontken because its my saviour.
3. If ARBB can double its current earnings, if you calculate it is like Frontken already. The EPS is the same as Frontken if ARBB managed to double its earnings.
4. You notice to convert ARBB-PA you need to pay RM0.19 to the Company right? So aside from your dilution in earnings, the Company received money from the conversion to fund their ERP and IoT projects as working capital. So you don't need to borrow money from bank and incur borrowing costs.
If you don't understand please re-read. This article although relates to ARBB but you can use this knowledge and apply to other counters as well.
Conclusion:
My friends, where is the dilution we're talking about here? Dilution is equivalent to PE being higher a bit, which I have proven above. I'm not trying to promote this stock although I have holdings. There have been many negativity for this stock and I'll tell you why:
1. Presence of swing traders - This category of people eye stocks that have a trading range, which is say RM0..29 - RM0.38. This category will try collect at the bottom and sell around the higher range. So if they sell at the top like yesterday, of course they will tell you this is a rubbish stock because they need to collect it cheap and sell at the higher range.
2. Presence of long term holder (I myself in this category for this stock) - This category of people don't mind waiting for long, because as long as it is making profit and keep increasing we don't mind waiting, because once it starts moving we will be the one which will make massive gains. But of course this category need really a lot of patience in order to reap the rewards. Not easy, and few can do it.
3. The confused investor - They typically don't know what they're buying into and have zero knowledge in the Company and react based on news.
4. The panic sellers - Whenever they see the price drops below their costs, they get panic even 0.5 sen. If drop 3 sen it is like you're killing them already. (3) and (4) are almost the same.
5. The frustrated investor - Knows the true value of the Company but just don't know why the idiot Company not moving up. Sometimes I fall under this category as well. Reason why it's not moving up is due to lack of peoples awareness and some negativity of the Company not cleared. Same like I mentioned when Frontken was RM0.15 and people telling me I'm stupid. You need to give it some time. For me sometimes I fall under here also due to the fact I did all my homework and still the stock price falls when you know its a good company to invest.
6. "Fatty Liew" factor - This one to be honest, I don't think his fault since the profits from operations come from him. Other people have their own thoughts.
WHERE IS THE BIG DILUTION PLEASE? MY CAKE BECOME SMALLER. HELP HELP. JUST THE PE INCREASE ONLY. WHY NEED TELL DILUTE DILUTE? Don't always listen to people. Do own research and read more BabyAce article so you can become brave and intelligent. There is a difference between telling people:
a) Things will get better or b) It's bad now. The people who tell you earnings dilution dilution is the (b).
I'm sure most of you will think this Company easily also RM1 but how come cannot move up one. Refer (5). You need time for people to realised it and the awareness of people. Another thing is that the business model is something new so people still don't understand how the thing works. Need time. And people spreading negative news about dilution what is this stupid ARBB-PA. It is explained here. You can comment if you have any questions and I would be glad to answer them. In the next articles, I will talk about the business operations of ARBB. Today got things to do so I shall see you again in the next one.
Don't you guys tomorrow go buy this ARBB ok? You need to do more research then ask yourself if it's ok or not if I make this investment? Don't also believe blindly in me. You need to do your own assessment. I don't write this later you all gila gila go simply buy tomorrow. Assess and verify first.
Disclaimer
The research, information and financial opinions expressed in this article are purely for information and educational purpose only. We do not make any recommendation for the intention of trading purposes nor is it an advice to trade. Although best efforts are made to ensure that all information is accurate and up to date, occasionally errors and misprints may occur which are unintentional. It would help if you did not rely upon the material and information in this article. We will not be liable for any false, inaccurate, incomplete information and losses or damages suffered from your action. It would be best if you did your own research to make your personal investment decisions wisely or consult your investment advisor.
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