ARB Berhad (7181)'s Irredeemable Convertible Preference Shares, or widely known as ICPS had been scaring off investor for quite some time now. It is time now to talk about this issue and the possible effect of ICPS on stock price.

But first, we need to understand deeply what is this "ICPS" all about.

ICPS had almost the same nature as warrants, except that during a default of a company, they have a high seniority as compared to common stocks or warrants. In short, they are kind of like a convertible bond but due to its irredeemable nature, the issuer (ARBB in this case) shall not be allowed to recall them.

In ARBB’s case, the issuer shall not be able to recall the ICPS, leaving the potential upside of the company to the ICPS holder.

Actually, I do not understand the mindset of people who are shunning ICPS. ICPS is just like private placement, the company would receive an amount of funding by issuing new shares to the converter, what’s so bad about that?

Look, there are crazy amount of companies that are struggling out there, especially construction company with weak cash flow, but ARBB had the constant flow of cash into the company due to the nature of ICPS!

For some stock pundits, they might argue that ICPS would dilute the shareholding rights of a company.

Hence here’s my question, would private placement, rights issue and company warrants dilute the shareholding rights of a company?

ABSOLUTELY!

So why is ICPS being hated by investor? There would only be one reason – someone is spreading the hate on ARBB to collect more shares at lower prices.

This might sound like drama, but the truth is... look at KYY. Did he not depress stock counter prices and collect them during low? Yes, he lost most (if not all) of his follower in return for earning some dirty money... WOW!

I believe the same thing is brewing in ARBB.

So, if you are worried about ICPS, let me just share with you one simple logic. As long as ARBB’s net profit outgrows the ICPS conversion, or so-called dilution, the company fundamentals are intact.

Next question, is ARBB growing?

Just have a look at the company recent 7 quarters. The company still managed to have a YoY growth apart from COVID-19 dragging them down. 

What's more? ARBB is currently trading at LESS THAN 5 TIMES PER! Where could you find any company with such growth prospects and low valuation as ARBB?

NONE, I can tell you that with confidence.

If you don't collect now, don't come back and cry to me when ARBB is RM 0.50!!