Will Enterprise Resource Planning (“ERP”) be the future?
I've noticed that a lot of investor are focusing on electric vehicle (“EV”), 5G, vaccines, and perhaps even steel prices now. However, the one true growing sector now – and making money is the less viewed ERP sector!
For new readers here, ERP is simply the acronym for Enterprise Resource Planning, I guess the name more or less suggests what the system does, but I assure you, it goes beyond that.
"ERP would help a business to manage their inventory level (be it raw material, half-finished goods or completed goods), new orders, account management, human resources, and don’t forget it includes Customer Relationship Management (“CRM”) in it, too!"
In short, ERP would be a one-stop solution for manufacturing businesses, but of course it also works for other sectors, such as trading businesses, services and so forth!
Now, one question we should have in mind would be – is ERP growing now, and will it grow in the future?
Yes, ERP had grew strongly over the past years, and this is what fuels one company I would share shortly in this article. But what you should know is, one of the huge research firm, namely the Intrado had forecasted ERP is expected to grow by USD 19.52 Billion on a Compounded Annual Growth Rate of 9% from 2020 to 2024.
And this is only on a wide scale basis!
To be a successful investor, apart from filtering a stock from the macroeconomy level, one should also drill down on value stocks to invest in. And in Malaysia, there is only one company that would pique my interest. And that is – ARB Berhad (7181).
There are a lot of noise about this company, bla bla bla, but ARB is one of the strongest ERP players in Malaysia, and that is coming from MIDF’s analyst!
After studying deeper into the company, we noted that ARB does not simple sell the ERP software. Instead, they would design a specific set of solution for their partners / clients. And from there, ARB will work out the way to grow with the company, and not simply draining the cash from the company.
If you look at ARBB’s past financial year record, they had achieved substantial YoY as well as QoQ growth. Even in the latest financial year, FYE 2020, they still did pretty damn well under the impact of COVID-19.
To give you a better idea, ARB made a net profit of RM 8.40 Million in the past quarter, and if we discount the profit by 30%, and times 4 to get a rough figure of net profit (discounted), on average ARBB would make around RM 23.52 Million per financial year – and that is a very, very conservative figure!
Next, all ERP software demands a P/E ratio of 20 and above, except for loss making ones. So what P/E should you bestow upon ARBB? Again, let’s discount another 30% from the 20 times P/E ratio, and you would get a market capitalization of RM 329.28 Million, and when comparing to the current market capitalization of RM 121 Million, that would be a steep discount of 63%!
Therefore, ergo, vis a vis, ARBB is wayyyy undervalued as of now. And as an investment blogging sharer, I must tell you – this company is too cheap to ignore!