Tuesday 19 Mar 2024
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Malaysia-Steel-Works-Chart_32_1069BURSA MALAYSIA has rejected Malaysia Steel Works (KL) Bhd’s (Masteel) application to extend the deadline to submit its financial results as the company’s prevailing issues have all been within its “reasonable control”, according to the stock exchange.

“The timeline for submission is clearly stated under Bursa requirements. Companies need to plan ahead in order to issue their statements on time. So, the issues raised were all within Masteel’s reasonable control,” a Bursa official tells The Edge.

“It should engage its auditors early enough to have time to work out these issues and submit its financial statements on time,” he adds.

Masteel’s annual audited accounts for the financial year ended Dec 31, 2014 (FY2014) were due on April 30, while its 2014 annual report and first quarter ended March 31, 2015 (1QFY2015) results were due at end-May.

The company — whose shares have been suspended since May 12 — has had to delay the issue of its quarterly earnings due to an ongoing review of its accounts by special auditor UHY Advisory (KL) Sdn Bhd.

UHY Advisory is conducting an independent and comprehensive review of the issues raised by Masteel’s external auditor, Messrs Nexia SSY.

Masteel (fundamental: 0.35; valuation: 1.4), which manufactures and sells high-tensile steel bars, mild steel bars and prime steel billets, expects the review to be completed in six weeks from April 30 — which is due next week.

The trading of the company’s shares will remain suspended until it has issued all the required disclosures to Bursa.

“In view of the above, Masteel is not able to furnish its 1QFY2015 results to Bursa as the company needs the finalisation of the annual financial statement (AFS) 2014 in order to have the comparative information and corresponding financial figures [and to be able to bring] forward figures from FY2014 to the opening figures in the first quarterly report,” the company said in a filing to Bursa last Tuesday.

In an earlier announcement, Masteel said Bursa will commence the delisting of the company if it fails to issue the outstanding AFS 2014 within six months after April 30.

“Our rules provide that if the AFS are outstanding for more than six months, we have the power to delist the company. But that is not an automatic decision and we will engage with the board first,” the Bursa official says.

“We take this strict stance on the matter because financial statements are deemed critical for the investing public to make informed decisions.”

He points out that Bursa’s practices are comparable to other stock market regulators such as the Hong Kong stock exchange and Australian Securities Exchange (ASX). In fact, ASX does not entertain requests for extensions, he says.

According to the official, companies on Bursa have a 99.5% compliance rate when it comes to the timeliness of their financial statements.

The whole matter began for Masteel when its external auditor Messrs Nexia SSY was not able to express an opinion on its FY2014 financial statements.

In its initial announcement on April 27 this year, Masteel said this was due to various issues, including the classification, description and recoverability of various transactions that it had carried out in FY2014.

The company had earlier announced that its unaudited net profit in FY2014 plunged 41.5% year on year to RM15.797 million, on the back of a 5.56% increase in revenue to RM1.45 billion.

As at end-December, cash and cash equivalents were RM36 million, but after accounting for total borrowings of RM313.3 million, net debt amounted to RM277.3 million.

According to the company’s unaudited financial statements, receivables jumped 38.6% to RM331.9 million from the year before.

This can be explained by a similar increase in revenue, but according to PublicInvest Research, the situation is uncommon.

“A one-for-one increase is uncommon, implying inexplicably long credit terms given. Either that or some overdue receivables may be deemed irrecoverable by the auditors, suggesting the need for some impairments in the accounts, hence a possible ‘disagreement’ between the company and auditors resulting in the latter being unable to express an opinion on the financial statements,” the report dated May 12 said.

“Or it could be much ado about nothing, of which the company’s share price could rebound as its fundamentals remain relatively intact,” it added. The research house has an “outperform” call on Masteel with a target price of RM1.10.

Since the company first made the announcement on April 27, its share price has tanked 30% to as low as 57.5 sen on May 7. The stock closed at 62 sen on May 11 — it was suspended the following day — for a market capitalisation of RM151.3 million.

Masteel had not responded to questions from The Edge as at press time.

That said, the company issued a statement last Friday saying it will “continuously render full support and co-operation to UHY Advisory, special auditors and Messrs Nexia SSY, external auditors in order to expedite the finalisation of the company’s AFS 2014 for public release within six weeks from April 30”, having taken into consideration its “obligation to uphold appropriate standards of responsibility and accountability to shareholders and the investing public”.


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on June 1 - 7, 2015.

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