KUALA LUMPUR: ARB Bhd is looking at mergers and acquisitions (M&A) with strategic of business and technology with higher return on investment to expand its cloud computing business in 2021.
Taking advantage of its net cash position as well as positive profit in the financial year ended 31st December 2020 (FY2020), the company is looking at ways to extend its footprint in the information technology (IT) segment.
"I think we are in a good position to expand our business beyond the boundary. Over the last three years, we have solidified our position in the IT business in Malaysia, especially in the field of enterprise resource planning (ERP) and Internet of Things (IoT) solutions as Covid-19 accelerated user demand for cloud-based computing needs," executive director Datuk Sri Larry Liew Kok Leong said in a statement today.
Despite challenges posed by the current economical landscape, the group posted profitability in the fourth quarter (4Q) FY20, achieving a net profit of RM19.7 million.
As of now, the group's strong net cash position of RM24.5 million could position itself to weather through all kinds of difficulty.
Liew said the group will be able to ride on the surge in demand for cloud-based computing needs following the Covid-19 pandemic.
He also added that there is a rising demand from international clients as digitialisation efforts and cost-optimisation for the long-term is seen from the solutions offered.
"IT solutions have been proven to help companies achieve their digitalisation efforts as well as to improve cost optimisation in the long-term.
"We foresee strong demand and needs for solutions in new categories such as big data analytics, e-commerce solutions, IoT platform for 5G and data cybersecurity. The group needs to expand into horizontal markets to provide innovative solutions in this area but the demand far exceeds our capacity and existing infrastructure.
"This is why the next phase for ARB is to look at M&A potentials as well as collaboration with our local partners," Liew said.
Lst month, the government has initiated MyDigital which includes the Malaysia Digital Economy Blueprint, aimed to empower every Malaysia and serves as a digital transformation direction plan that is able to drive the business sector to compete on the global arena.
It targeted by 2025, the digital economy is able to contribute 22.6 per cent to the country's gross domestoic product (GDP).
In order to meet the growing demand, ARB intends to collaborate with its local partners and look into potential M&A to expand its geographical presence and access various new sectors by taking advantage of cross-border business opportunities in 2021.
Oversea expansion able to build regional reputation of the group.
On the domestic front, ARB will continue to work closely with government-linked companies, multinational corporations and public-listed companies to grow its ERP and IoT business segments.
Based on the statistics by Frost & Sullivan, the Malaysian IoT market is expected to grow at a compound annual growth rate (CAGR) of 24.7 per cent from US$2.2 billion in 2019 to reach US$10.3 billion by 2026.
The Malaysian ERP market meanwhile, is projected to grow from US$120 million to reach US$255 million in 2026, growing at a CAGR of 11.4 per cent in the same period.
This would provide strong organic growth potential for ARB, which has an established presence in Malaysia.
The group, which has undergone a massive transformation since 2018, from a timber business operator to an IT software and platform provider, saw a sharp turnaround over the last three financial years.
The group's success in breaking away from its decade-long losses lies in its strategic diversification into the field of ERP and IoT solutions.
To date, ARB is amongst the lowest in terms of valuations when compared to its peers in the technology sector.
Currently, the group has one of the lowest price-to-earnings ratios in the technology sector at just 4.3 times as of 1 March 2021 as compares with other technology industry players such as Mi Technovation Bhd (64.4 times), Inari Amerton Bhd (63.5 times) and ViTrox Corp Bhd (88.8 times).
This is partly due to the explosive earnings growth over the last three years, while share price has not increased by as much.
With meaningful earnings growth over the last three years and an exciting year awaits for ARB, the share price has seen a sharp pickup by 47.2 per cent to 39 sen from 26.5 sen at the beginning of February.