KUALA LUMPUR (Nov 23): ARB Bhd's net profit for the third quarter ended Sept 30, 2020 (3QFY20) inched up 1.27% to RM8.4 million from RM8.29 million a year ago, despite a significant jump in revenue.

This is because the group's profitability was mitigated by higher costs of sales, which almost doubled to RM48.12 million in 3QFY20 from RM24.38 million in 3QFY19, it said in a bourse filing.

The earnings were also weighed by higher administrative expenses, which rose to RM1.83 million in the current quarter against RM1.65 million a year ago.

Earnings per share dropped to 1.9 sen from 3.54 sen, after a number of its irredeemable convertible preference shares were converted to ordinary shares, increasing its ordinary shares in issue to 443.03 million from 234.6 million a year ago.

Quarterly revenue rose 71.78% to RM58.3 million from RM33.94 million a year ago.

The group attributed the increases in revenue and net profit to the improved contribution from the internet of things (IoT) supply chain and distribution of smartphone, accessories, ICT and IoT products and services via its extensive sales and distribution network throughout Malaysia.

For the cumulative nine-month period ended Sept 30, 2020, its net profit rose 7.91% to RM23.72 million from RM21.98 million a year ago. Cumulative revenue more than doubled to RM146.99 million from RM57.65 million.

Earnings per share stood at 5.35 sen versus 9.37 sen a year prior.

In a separate statement, ARB executive director Datuk Seri Larry Liew Kok Leong said its IoT business segment is improving, contributing to more than 45% of the total revenue in 3QFY20, compared with only 30% in 3QFY19.

"This is a healthy indication, as we strive to reduce our dependency on the Enterprise Resource Planning (ERP) segment, while continue to enhance our solution offerings and deliver sustainable returns to our shareholders," said Liew.

While Liew said that the net profit margin of the IoT segment is lower, as it involves utilisation of hardware in the development projects, he is confident that IoT will become a new engine of growth for economic and technological development in the world as Covid-19 has accelerated digitalisation in the workplace and interaction with the world.

The group's two main business segments are ERP and IoT. Under the ERP segment, ARB is involved in designing and reselling of customised ERP solutions that facilitate information flow among all business functions and manage connnections to outside stakeholders.

Meanwhile, under the IoT segment, the group is involved in the full turnkey deployment from designing, installation, testing, pre-commissioning and commissioning of various IoT systems and devices as well as integration of automated systems for smart building.

"Our ERP and IoT segments will drive alignment, focus and growth while sharpening our partner focus. In addition, we are excited to see our IoT solutions business return to growth by serving more enterprises, further building on our annualised recurring revenue," said Liew.

In light of the uncertainties due to the continuing Covid-19 pandemic, ARB said it has implemented several cost reduction measures that will result in savings in FY20.

Furthermore, the group's well-capitalised balance sheet, stellar technical capabilities, diversified product offerings, diverse partnership base make ARB well positioned to manoeuvre through this challenging situation and most importantly take advantage of opportunities that may arise from the growing demand in IT services industry.

At 4.23pm, ARB's shares were traded at 30 sen, up half a sen or 1.69%. Some 38.3 million shares were traded so far. At the current price, it has a market capitalisation of RM128.61 million.