ARBB — H1 2026 Financial Report Analysis

ARB IOT Group, a Kuala Lumpur-based systems integrator (its executive office is in Singapore, but all operations and revenue are in Malaysia), nearly doubled revenue in the six months to December 31, 2025, the first half of its fiscal year 2026. Revenue rose 82.0% to RM150.4 million (about $37.0 million). The growth came from one product: every ringgit of revenue came from reselling AI server hardware. The company's two older IoT businesses, smart buildings and smart agriculture, booked nothing. The net loss narrowed to RM14.7 million from RM27.5 million. That improvement came from lower depreciation and amortisation and from the absence of last year's write-offs, not from the new sales, which left a gross margin of just 1.2%.

All figures are in Malaysian ringgit (RM), the company's reporting currency. The filing converts them to US dollars at RM4.0650 per dollar for convenience only.

At a glance

• RM150.4 million revenue, 100% AI servers. The company has effectively turned into a hardware distributor this half. Smart Building and Smart Agriculture revenue fell from RM82.7 million combined a year ago to zero because, per the filing, those projects "were completed prior to July 1, 2025."
• 1.2% gross margin. Gross profit, meaning what is left of sales after paying for the goods sold, was RM1.9 million on RM150.4 million of sales, down from RM2.75 million (3.3%) on RM82.7 million a year ago. More revenue produced less gross profit.
• RM14.6 million of the RM16.6 million in expenses is depreciation and amortisation. These are non-cash charges that spread the cost of past purchases over time. Before working-capital movements, the business was roughly cash-neutral, with an operating cash outflow of RM0.14 million.

Results versus a year ago

EPS reflects 1,765,256 weighted shares in both periods, restated for a 1-for-15 reverse share split on May 29, 2025. In dollar terms (convenience translation), the net loss was $3.6 million and the loss per share was $2.04.

What changed: a switch to reselling AI servers

The company's MD&A says its revenue "mainly consists of sales of IoT AI Server Solution", and attributes the 82.0% rise "primarily" to "the sales of hardware AI servers." Behind this sit supply deals the company announced earlier: about $45 million for 500 ARB-222 AI servers to Gajah Kapitalan (GKSB), and a further contract worth about $53 million with Whizzl Group. The filing does not say which customer this half's revenue came from.

Hardware resale at this scale carries almost no margin. Cost of sales was RM148.5 million against RM150.4 million of revenue. The margin left was thinner than a year ago, when the smart-building contract (mostly IoT-enabled devices, sensors, controllers and gateways) earned 3.0% (RM2.1 million gross profit on RM69.0 million). Smart agriculture earned 4.8% (RM0.65 million on RM13.65 million).

Why the loss narrowed

Total expenses fell RM15.2 million, from RM31.8 million to RM16.6 million. The MD&A points to "the decrease in amortisation of intangible assets, general administrative expenses and depreciation of property, plant and equipment." Here is the breakdown:

• Amortisation fell from RM9.5 million to RM3.9 million. Amortisation is the yearly write-down of intangible assets, here mostly acquired drone supply and service agreements and software source code.
• Depreciation fell from RM14.2 million to RM10.7 million. Depreciation is the same kind of write-down for physical assets, here RM158.4 million (at cost) of computer systems and equipment.
• Other operating expenses fell from RM5.2 million to almost nothing. Last year's figure was mainly one-off charges: a RM4.0 million impairment of a deposit, a RM0.75 million goodwill impairment, RM0.29 million of intangibles written off and a RM0.16 million loss on disposing of subsidiaries.

The day-to-day business barely contributed to the improvement. Gross profit actually fell by RM0.9 million. Cash overheads (personnel of RM1.2 million and general admin of RM0.8 million) were about RM2.0 million, slightly more than the RM1.9 million of gross profit.

What the headline numbers hide

• The loss is almost entirely non-cash, and the profit before those charges is almost nothing. Adding back RM14.6 million of depreciation and amortisation to the RM14.3 million pre-tax loss leaves roughly RM0.3 million. The positive operating cash flow of RM0.36 million came from interest income (RM0.46 million) offsetting a small operating cash loss. The AI server sales did not generate it.
• A large working-capital swing sits behind a flat cash balance. The company collected all RM41.8 million of trade receivables outstanding at June 30, 2025, and took in RM34.5 million of customer deposits for goods not yet delivered (recorded as contract liabilities, all due within 12 months). It used that cash, plus RM9.2 million to pay down supplier bills, to make a RM66.8 million trade deposit to suppliers, which did not exist at June 30. In effect, the company has prepaid suppliers about RM32 million more than customers have prepaid it. That is a sizeable exposure for a company with RM174 million of equity. It would also become a loss if the related orders fell through, and last year's RM4.0 million deposit impairment shows the risk is not hypothetical.
• Cash itself was flat: RM32.3 million at December 31 against RM32.6 million at June 30. RM15.4 million of it was moved into fixed bank deposits, which the cash flow statement shows as an investing outflow.
• Large assets earned no revenue this half. The balance sheet carries RM67.4 million of computer equipment and RM49.8 million of intangibles. Together they make up 54% of total assets, and they are tied mainly to the smart-building and smart-agriculture businesses that booked zero revenue this half. They will keep producing roughly RM29 million a year of depreciation and amortisation (twice the half-year run rate) whether or not they generate sales. If they stay idle, they also risk being written down.
• Announced farming orders have not yet shown up. The MD&A repeats that palm-farming orders covering 3,000 and 2,000 acres in Sabah are "expected to generate yearly recurring revenue" of about $20 million and $13 million. Smart Agriculture revenue was zero this half.
• The tax line went the wrong way. The company booked a RM0.4 million tax expense despite a loss, against a RM0.9 million credit a year ago. The filing attributes this to deferred-tax movements, including "over-provision of deferred tax expense in the prior year" and the use of losses carried forward.
• The report arrived late. These half-year accounts for the period ended December 31, 2025 were furnished on Form 6-K on May 8, 2026, more than four months after the period closed.

Takeaway: The 82% revenue jump replaced ARB IOT's old businesses with AI server resale at a 1.2% gross margin, which is too thin to cover even RM2 million of half-year cash overheads. The narrower loss comes from lower depreciation and amortisation and from last year's write-offs not repeating. The number to watch is the RM66.8 million paid to suppliers in advance: it either turns into delivered servers and revenue, or into a write-down.

Outlook

Management gives no revenue or profit guidance in this filing. Two things point to more AI server revenue in the second half (January to June 2026): RM34.5 million of customer deposits sit on the balance sheet waiting to be recognised as goods are delivered, and the company has prepaid RM66.8 million to suppliers. The announced GKSB and Whizzl contracts (about $98 million combined) are also larger than the $37 million booked this half. At current margins, though, extra server revenue adds little profit: another RM150 million of sales at 1.2% would add under RM2 million of gross profit, against roughly RM29 million a year of depreciation and amortisation. A path to reported profit needs one of three things: margins on server deals well above today's 1-3%, the farming and smart-building businesses producing revenue from the assets already on the books, or those assets being written down. The full-year results (fiscal year ending June 30, 2026) are due in the annual report on Form 20-F; last year's was filed on October 31.