To no great surprise, the Group’s auditors have issued qualified opinions on the 31 December 2018 accounts given the considerable financial plight it is in. On a potentially more encouraging note, this may see the Group dodging an immediate bullet as its accounts have been vetted, qualified opinion notwithstanding, provided it submits the 2018 Annual Report by the May 8 deadline however, or face the risk of indefinite suspension from trading. It still remains a race against time however, with just about 4 months till August 27 to submit a regularization plan. Separately, the Group has appointed debt restructuring specialist Sage 3 Capital Sdn Bhd to formulate and implement a scheme which is expected to address key matters in relation to the disclaimer of opinion and which shall from part of the overall regularization plan. Pending clarity and details on the plan, our target price/valuation continues to be placed under review with Neutral call maintained. Earnings estimates are also left unchanged at this juncture, but present significant downside bias.

• Matters of concern. Auditors Deloitte PLT highlighted that: 1) the Group has a capital deficiency of RM136.2m as at 31 December 2018 and that the current liabilities have exceeded current assets by RM214.1m, 2) it has been unable to obtain sufficient information to assess as to whether the eventual regularization plan would address the present financial condition of the Group, 3) the various litigation cases which may end up putting further financial strain on the Group, and 4) a put option signed pursuant to its ill fated venture into the subsea business which it has since exited, but which may now come back to haunt Given the uncertainties involving the timing and successful formulation and implementation of the regularization plan, the auditors have not been able to obtain sufficient and appropriate audit evidence to determine whether management’s use of the going concern basis in the preparation of its financial statements is appropriate.

Source: PublicInvest Research - 7 May 2019