ARB Berhad, or in short ARBB (7181) has successfully delivered stellar results even with the affect of COVID-19 in mind, the company reported a RM 55.3 Million in revenue, a huge jump of 391% as compared to FY 2019 Q2 !As per discussed in our article published this afternoon, ARBB is now trading at P/E of merely 4 times, in case you missed out our analysis, here's the link for your perusal.
We understand that the company has delivered such amazing results due to their unique business model in Enterprise Resources Planning ("ERP") and Internet of Things ("IoT") growth. However, the company's Profit After Tax ("PAT") is slightly affected in this particular quarter due to higher "Other Operating Income" in FY 2019 Q2.
To be fair for ARBB, the company still achieved RM 8.3 Million in PAT even during the MCO period; in which most businesses are badly affected, and some even file for bankruptcy, while the company is still profiting with positive cash flow!!
In this quarter alone, ARBB created RM 5.7 Million from operations for it's shareholders. Under fundamental analysis, we know that cash from generation from operating activities are essential for the company to survive; so can ARBB weather the COVID-19 storm and thrive? Well, the cash flow is worth much more than my words!
However, is this the best ARBB can do? No, certainly not! Here's what the management say under Note B2 of FY 2020 Q2 quarterly financial report:
If achieving net profit of RM 8.3 Million is not impressive yet.. What would it be? Let's take a conservative method of valuation for ARBB's forward P/E for the next 4 quarters.
Assuming the company's ERP and IoT sector is expected to grow by 20% annually, this would translate to at least 15% of bottom line for ARBB, hence RM 8.3 Million * (100% + 15%) = RM 9.6 Million PAT!
Prediction for the company's future earnings:
FY 2020 Q3 - RM 9.6 Million PAT
FY 2020 Q4 - RM 10 Million PAT
FY 2021 Q1 - RM 9 Million PAT (Assuming the company had minor setback)
FY 2020 Q2 - RM 10 Million PAT
*The figure shown above are not plucked from the sky, the company did achieve past the RM 12 Million PAT mark before!
Hence, the forward 4Q earnings for ARBB would be at least RM 38 - 40 Million, given a fair valuation of 8 times P/E for the company, ARBB moving forward would worth AT LEAST RM 304 Million Market Capitalization, and based on the current Number of Shares Outstanding for ARBB of 428,217,647, each share is worth RM 0.700 - RM 0.710 each, with that in mind, ARBB is currently trading at a forward P/E discount of 51%?
Is this some kind of joke?
No, certainly not, it just that the market has not fully understand the value of ARBB ! Should the market really understand the business model of ARBB, it would be too late to invest in the company; as the valuation would be at least 10 times P/E.
This post is not to ask you to buy or sell ARBB, I'm just telling you that ARBB is currently undervalued USING SIMPLE AND LOGIC THINKING.
Don't just take it from me, here's another like-minded investor reasonable sharing on the company. Your call.