KUALA LUMPUR (Oct 17): ARB Bhd intends to distribute the majority of its 94.56% stake in a subsidiary — ARB IOT Group Ltd — to its shareholders through dividend-in-specie, as a way to reward them with direct ownership in the Nasdaq-listed entity.

The proposal aims to distribute up to 23.52 million shares or 88.95% stake in ARB IOT Group on the basis of 14 shares for every 1,000 shares in ARB, according to the group’s filing with Bursa Malaysia on Tuesday.

Depending on the conversion of ARB’s outstanding of 463.08 million irredeemable convertible preference shares (ICPS), the distribution may reduce the group’s ownership in the US-listed entity to 30.13% in the case of zero conversion, to as low as 5.61% if all ICPS are converted into ordinary shares.

ARB’s largest shareholder is executive chairman Datuk Seri Liew Kok Leong, who has a 12.58% direct stake and 8.81% indirect shareholdings through Ukay One Sdn Bhd.

The distribution will result in Liew owning between 8.11% and 14.69% stake in ARB IOT Group, depending on how much ICPS he converts prior to the corporate exercise.

As for other minority shareholders in ARB, they will collectively own between 56.09% and 67.37%.

ARB said the distribution will increase public shareholders portion in ARB IOT Group to between 55.97% and 67.26%, from the 5.44% currently,

The distribution proposal came after two rounds of distribution-in-specie in September by ARB’s wholly-owned subsidiaries, ARB Holdings Sdn Bhd and ARB IOT Ltd, to transfer the shareholdings in ARB IOT Group to be directly held under the Malaysian listed entity.

ARB IOT Group was listed on Nasdaq in April this year. It was incorporated as a Cayman Islands company in March 2022 and started operations in the same month, by providing IoT system integration solution services, such as smart home and building solutions, hydroponic system for agriculture purposes, industrial building management system on construction projects, and marketing and sales of mobile gadget accessories.

ARB disclosed that its cost of investment in ARB IOT Group was RM11,502.50, with Liew also acting as chairman and CEO in the latter.

ARB IOT Group recorded a net profit of RM73.58 million for the financial year ended June 30, 2022 (FY2022), nearly four times higher than the RM18.68 million in FY2021, while revenue jumped eight times to RM443.02 million from RM50.32 million.

However, for the six-month period ended Dec 31, 2022 (6MFY2023), net profit dwindled 85% to RM3.67 million from RM25.34 million a year ago, while revenue dropped 28% to RM123.52 million from RM171.73 million, due to absence of new system integration job.

It is worth noting that ARB had in September this year requested to change its financial year-end to Dec 31 again, and obtained Bursa Malaysia’s approval for extension of time to hold its annual general meeting before June 30, 2024, and file its audited financial statement before June 9, 2024.

The group had just changed its financial year-end from Dec 31 to June 30 in February last year, and filed its 18-month annual report for the fiscal year ended June 30, 2022.

With the latest change of fiscal year-end, ARB is poised to have its second straight 18-month period annual report for the financial year ending Dec 31, 2023.

Shares of ARB closed unchanged at 9.5 sen on Tuesday, giving it a market capitalisation of RM115.59 million.

Meanwhile, ARB IOT Group’s share price on Nasdaq closed at US$1.45 on Monday (Oct 16), valuing it at RM181.55 million or US$38.33 million.

“In view that the market capitalisation of the company is lower than its net assets and the market capitalisation of ARB IOT Group, the proposed dividend-in-specie will create values for the entitled shareholders as the proposed dividend-in-specie will provide an avenue for the shareholders to receive ARB IOT Group shares.

“In addition, ARB IOT Group shares might have a more recognised or favourable market valuation which grants the entitled shareholders the opportunity to either hold onto ARB IOT Group shares or sell them, thus potentially realising a higher value than if they sell ARB shares given the current market mispricing,” said ARB in the Tuesday stock exchange filing.

Since ARB IOT Group's public listing in April, its share price has fallen 64% so far, and 68% from the all-time-high of US$4.65 on Apr 21 this year, according to Bloomberg data.