GPLUS has a breakout, but...

GPLUS has broken to the upside of its downtrend line today. The breakout level is at RM1.40. The stock gained 15 sen to close at RM1.53 today.

I did not post on this breakout earlier because the news surrounding this stock makes me feel very uncomfortable. First of all, there is a tussle going on between a substantial shareholder, Indian Corridor Sdn Bhd & the management of GPLUS. Indian Corridor is alleging that the management did not get a good price from its proposed residential development in Shanghai (known as Royal Garden) from the appointed project manager, CICL (go here for more details). The unhappy shareholder has been trying to remove the management team through an EGM but without success (go here for more). The attempt to hold an EGM was blocked by the company's management at the High Court, but the Court of Appeal has subsequently ruled in favor of Indian Corridor. The company's management has now appealed to the Federal Court to block the EGM.

On April 30th, GPLUS has applied to the Exchange for an extension for the filing in its audited account for FY2007 by 3 months to July 31st. This is because GPLUS' management has "agreed" to the external auditor, Messrs Moore Stephen's suggestion that an in-depth review of the records & accounts of the subsidiaries in China be carried out. If the account cannot be filed in by July 31st, the stock will be suspended from trading. In addition, if the account cannot be filed within 6 months from July 31st, the Exchange could commence de-listing procedure against GPLUS.

How would a normal shareholder view this latest development? There must be some serious concern regarding the accounting records in China for the auditors to suggest a visit to check on these records & accounts. The management of GPLUS could be putting on a positive spin to a very embarrassing situation by "agreeing to the auditors' suggestion". Indian Corridor's position could be strengthened by this development. Their position could also be very precarious if their shares were financed by borrowing. There is a good chance that the financier could call in the loan if they feel that the stock could be suspended. This looks like a dirty fight, with the main opponents both having their hands on their rival's throat. To spice things up, we have a technical breakout today.

So, what do you do with this breakout? I think I will sit out on this one.


Chart: GPLUS' daily chart as at May 2, 2008 (courtesy of Quickcharts)