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Transmile in RED But The Story Has Not Ended



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May 31 2007
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Transmile Group Berhad (KLSE: TRANMIL, stock-code 7000), the cargo carrier whose shareholders include Malaysia’s richest man Robert Kuok may have overstated its consolidated revenues by US$157 million dollars (RM 530 million) over the past two years – such was the statement to the stock exchange when Transmile reported on interim findings made by Moores Rowland Risk Management which is carrying out a special audit.

The auditor found that in the financial year ended December 31, 2006, invoices were issued and recorded for purported services to 20 companies totalling US$ 98 million dollars (RM 333 million). The auditors also found invoices issued for purported services to 19 companies totalling 197 million ringgit in the 2005 financial year. The findings may result in Transmile having to re-state its 2006 and 2005 earnings if full provisions have to be made. According to the unaudited results for 2006 released to Bursa Malaysia on Feb 15, Transmile reported an 80% surge in revenue to RM989.2mil from RM550mil a year earlier. Net profit more than doubled to RM157.5mil against RM74.8mil in 2005.

The findings may result in Transmile having to re-state its 2006 and 2005 earnings if full provisions have to be made. If the overstating figures were to be taken into consideration, Transmile’s 2006 pretax profit of 207 million ringgit could be reduced to a loss of 126 million, while the 2005 pretax profit of 120 million could be cut to a 77 million ringgit loss. Besides Kuok, Transmile’s shareholders include JP Morgan Chase & Co. (NYSE: JPM), Goldman Sachs (NYSE: GS, stock), the Singapore government and national postal company Pos Malaysia & Services Holdings (KLSE: POSHLDG, stock-code 4634).

Transmile said it had formed an executive committee (exco) which assumed authority of the chief executive officer, Gan Boon Aun, “arising from governance issues relating to the release of the announcement on the unaudited consolidated results for the financial year ended December 31, 2006.” The exco chaired by Kuok Khoon Ho also comprises two other board members – Tan Sri A. Razak Ramli and Datuk Abu Hairaira Abu Yazid. The three exco members are non-executive directors.

“These findings are the first instalment of an ongoing special audit and updates of any further material findings will be made as they become available,” Transmile chairman Tun Dr Ling Liong Sik said in the statement. Ling was the former president of MCA, one of the component parties of the current ruling government. So, I guess he “doesn’t” know anything about this accounting problem and as innocent as you and me.

While the “raid” by the Securities Commission (SC) should be commended, the job is not done yet. You can read nevertheless how SC comes out today to claim victory by stating it will not let up on efforts to ensure that the market is rid of all forms of irregularities and corporate misconduct, and that high standards of corporate governance and investor protection prevail. If this is another empty promise, please do not overdo it, not that I’ve already pass a guilty judgement on the SC. Will anyone be charged for this case? Inflating 30% more in profit is not something which can be taken lightly as the whole country’s equity market could be taken down as well.

On the other hand, will the shareholders see stern actions to be taken against NasionCom Holdings (KLSE: NSCOM, stock-code 0073) culprits, former Managing Director Chee Kok Wing, Director Tan Teck Hong, former Director Shamsul Khalid Ismail, shareholder Mah Soon Chai who inflate the revenue figure? If found guilty, would they be put behind bars or will they be given the option to happily pay the fines?

What about Deloitte KassimChan as the reporting accountant together with stockbroking firm Hwang DBS Securities Berhad in the restructuring of Ocean Capital Bhd and Pasaraya Hiong Kong? Shareholders might not trust the Managing Director of a listed company but most of them trust independent accountants because they’re supposed to be independent as far as dollars and cents are concern. So it’s everyone’s hope the SC will not start celebrating but continue with the roles and tasks that it’s suppose to carry to protect the smaller shareholders.

# TIP: Though Transmile might not be the ENRON but let the stock price settle to where it should be before buying in stages. I do not believe Transmile will collapse just because of this irregularity, but the same cannot be said for Nasioncom.

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