Will POS Smell What TRANSMILE was Cooking?

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Jun 19 2007
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Now that the book-cooking is over (or has it?) for Malaysian air cargo carrier Transmile Group Berhad (KLSE: TRANMIL, stock-code 7000) with angry investors voicing their frustration over what seems to be obvious cover-up by the company’s top management, not to mention the role of external auditors who amazingly could not scrutinizing the accounting numbers after all these years, what’s next?

Minority Shareholders Watchdog Group (MSWG) has urged that the chief executive officer (CEO), chief financial officer (CFO), the audit committee, the company staffs that are involved in preparing the accounts to the 20 companies that are Transmile’s clients/debtors be investigated. Has the MSWG forgotten the Chairman of Transmile (come on, he can’t possibly know nothing)?

After taking into account the adjustments to its retained earnings of RM649 million, analysts expect Transmile’s net tangible asset per share to fall to RM2.88, compared with RM5.41 in its 2006 accounts. “Even after the report on special audit, we are no closer to gaining the full picture of Transmile’s future earnings potential. Currently, there’s no basis for us to upgrade our sell call,” said another analyst.

Meanwhile Malaysia’s market regulator said it has begun investigations into air cargo carrier which had reported financial irregularities and sharply revised down its results for the last two years – an action which is a little bit too late as far as “prevention” is concerned. Also, Transmile has made an official report to the police and Securities Commission today.
While everyone talks about the irregularities, one stock seems to be hiding in a corner waiting for its turn to be analyzed by financial investors. National postal company Pos Malaysia & Services Holdings (KLSE: POSHLDG, stock-code 4634) which has a 15 percent stake in Transmile might be affected by the crisis.

Pos Malaysia did not segregated the revenue from Transmile in its income statement but if the same principal of back-tracking previous years revenue basing on the latest audit report, probably we can come out with some interesting figure. For financial year 2006, audit found that Transmile posted a pre-tax loss of 172 million ringgit ($49.78 million) instead of profit of 207 million ringgit. By the same percentage of 15% equity, Pos Malaysia might have suffered a loss of 25.8 million ringgit instead of 31 million ringgit profit within the same period. Minus the 2006 pre-tax profit of 25.8 million and the fictitious 31 million from the group’s 211.8 million ringgit, it will yield Pos Malaysia 155 million ringgit only. That’s over 36% in indirect fictitious pre-tax profit.

As for 2005, Transmile actually registered a pre-tax loss of 67 million ringgit instead of profit of 120 million ringgit. By the same quantum, Pos Malaysia would have registered a pre-tax loss of 10 million ringgit instead of 18 million ringgit profit. So the number should be re-written as 118.9 million ringgit (minus 18 and 10 million from 146.9 million reported pre-tax) in pre-tax profit. The result – over 23% indirect fictitious pre-tax profit. You can do the calculation for 2004 if you like.

But since some analysts said this could just be the tip of the iceberg, I wouldn’t want to skate on it, would you? Can you smell what the “Rock” is cooking?

# TIP: Stay sideline as far as Transmile and POS Malaysia stocks are concern at this particular moment. If you’re a gambler, you might be able to pinch some meats out of Transmile volatility.

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