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Has the dust settled for local technology sector? I believe so. For the past 2 months, tech-investors had suffered badly from the retracement of the whole technology sector. Some had rebounded and broken new highs, but most have not recovered to their previous high yet.


For tech-lovers, we all have one question in mind. Can we invest into technology stocks now? Well, it depends, really. Chart wise however, is showing a consolidation pattern now.




A quick study on 90 listed technology companies in Bursa Malaysia, it was depressing to find out that more than half – a total of 46 out of 90 of these companies are not making any profits. Sadly, investors are often chasing around flashy turnaround stories, but most of them does not materialize. And as a result, investors often lose their hard-earned money.


In my humble opinion and experience as an investor; we should focus on great companies with great earnings and asset light. That is especially true when you are targeting the high growth technology sector. So, how do we identify these companies? For this, I had created a list of technology companies with the highest market capitalization, which I believe their share price do speak volume when we are talking on a big cap level.




The rationale behind picking these 10 companies is coming from their scale, market acceptance as well as proven earnings capabilities. Without a doubt, these are great companies. But how about the valuation?


These 10 companies resulted in an industrial average PE of 52.109 times. Which of course, is acceptable for me given the growth they demonstrated. But the upside for these companies is limited – as the share price had on average doubled since the pandemic. What about smaller cap companies?


I would say approximately 20% of the valuation are coming from their market proposition – for example INARI, MPI and D&O being the market leader of each respective sub-sector of semiconductor, and another 30% for the stunning growth opportunity. Hence, on average, a decent technology company should be only priced at half of the valuation these companies enjoy – which is around 26.0545 or ≈ 26 times PE.


Next question – WHICH is a company that we need to choose? Definitely not from those loss-making “tech” counters. A counter however, stumbled across my watchlist when I was going through several press.




Knowing how cheeky Deloitte was in choosing companies to fit into their award list, it amazes me when ARB Berhad (Formally known as Aturmaju Resources Berhad), or stock code 7181 was in their list! What is so special about this ARB Berhad (also known as “ARBB”)?




For the past 5 financial year, ARBB’s revenue had grown from a moderate 35.036 million to 219.454 million. More interestingly – their turned around from a 15.593 million loss to a 42.870 million profit!


Upon studying deeper on the company, it was then I know this is a undervalued gem that I had been looking for. Unlike the hardware players positioned in Asia’s Silicon Valley – Penang, this company was based in Kuala Lumpur and was software orientated. I was attracted by their unique business model of partnering up with Small & Medium Enterprises to provide them customized ERP software.


As we know, it was hard for SMEs to fork up additional working capital to expand their business, let alone a substantial sum to invest in an ERP software to streamline their system. By a method of partnering, not only that ARBB is able to minimize the capital expenditure for these SMEs but are able to tap into their growth as well.


Moreover, ARBB had also proven their business model is working well via results, not by flash stories. But one more question in mind, why, despite the company’s profit achieved a new high of 42.870 million but the EPS was declining, from 11.46 to 9.55?


Then is when I noticed that ARBB had previously issued a derivative of Irredeemable Convertible Preference Shares (“ICPS”) to raise capital. At a first glance on the dilutive effect, I almost backed away from the company. But what made me continued with my studies on ARBB?


It was their earnings growth potential that got me stayed.


The issuance of ICPS was huge, where on 19th December 2018, for each 1 ARBB share a shareholder hold, they would receive the right to subscribe up to 15 ICPS at the price of 0.010 per ICPS, where effectively this pile of cash and proven to fuel the growth of the company. But how about the dilutive effects?


Prior to the issuance of ICPS, the company had a total number of shares outstanding of 67,210,000 excluding potential conversion from warrants. By a factor of 15 times, the ICPS was amounted to a total 1,008,150,000.


Based on the information available on 14th April 2021, the company currently had a total number of shares outstanding of 587,521,127. In other words – a total of 520,311,127 (not sure about the fragmented 27 shares) had been converted from ICPS to ARBB’s mother share. That means more than 50% of the ICPS had been converted – and hence the dilutive effect is reduced by half, already!


One might imagine the PE for ARBB to be sky high by now, due to the dilutive effect. But no, interestingly the PE for ARBB is only merely 4.800 times at the price of 0.355 per share!


Using the company’s 42.870 million as a benchmark, the maximum number of shares outstanding for ARBB assuming full conversion of ICPS would be 1,075,360,000. Convert that into EPS, and it would be around 0.03987 per share. What is the new PE now?


Based on my calculation, it should be 8.90 times. Remember we had discussed about “normal” technology company’s valuation? Let’s assume there will be no growth from ARBB for the next financial year and remove the 20% premium on the valuation due to lack of recognition from the market. A valuation of 26 times PE should make ARBB at least 1.030 in share price, which means a 200% return from the current price!


But what is stopping the company from sky rocketing?


Once again – in my humble opinion, it was likely to be caused by the lack of knowledge of investors on the true dilutive effect on ICPS. Another reason might be ARBB is lacking “goreng kakis” behind to push its share price, hence, it is very hard for ARBB to receive recognition from the market organically.