Axis to be re-quoted in the afternoon session today

Axis' management has replied to Bursa's query regarding the non-submission of its Audited Financial Statements for FYE31/3/2008 (go here). In essence, Axis had advanced a substantial amount, now totaling RM161 million, to a group of Contract Manufacturers in Cambodia that are in a Strategic Alliance with one of Axis' subsidiary, Chongee Enterprise Sdn Bhd to carry on the business of cutting and sewing of the garments for customers in Europe & USA. Messrs. Horwath have disclosed the following in the draft financial statements:-

(i) Included in other receivables as at 31 March 2008 are amounts due from the Contract Manufacturers of approximately RM105 million. The amounts outstanding as at 31 March 2008 showed a significant increase compared to the amounts outstanding of approximately RM11 million in the previous financial year. Subsequent to the balance sheet date, approximately RM20 million have been settled by the Contract Manufacturers.*

(ii) The Contract Manufacturers also owed the Group a total of approximately RM28 million as at 31 March 2008 for sales of fabrics by the Group to the Contract Manufacturers. This amount is included under Trade Receivables in the financial statements.*

(iii) As at 31 March 2008, included in other receivables are prepayments of approximately RM32 million made to certain suppliers for the supply of embroidery services, purchase of fabrics and accessories. Subsequent to the balance sheet date, approximately RM11 million of these services and goods were received by the Group. As represented by management, the balance of approximately RM20 million are expected to be settled by the end of September 2008 through further delivery of services and goods.*

* Note: All the numerical figures as stated above are mere estimates taken from the draft Audited Financial Statements and they are not the final figures agreed upon by the Audit Committee and the Board of Directors.

Based on the Unaudited Balance Sheet as at 31/3/2008, Axis' Shareholders' Funds stood at RM214 million. If we assumed that only half of the amount advanced to the Contract Manufacturers in Cambodia is recoverable, then the Shareholders' Funds would be reduced by a write-off of RM80 million to RM134 million. Thus, Axis' NTA per share would be about RM0.88. Some may think that the 50% provisioning is too low, while others may think it is too high. I think it is fair because we do not know the true story behind the Strategic Alliance & the personalities involved. In addition, we do not know whether the other stakeholders, such as the bankers & the overseas customers, would continue to lend its support to Axis. In the worst case scenario, Axis could become a non-going concern. Nevertheless, Axis- at the current price of RM0.35- could have substantially priced in the worst case scenario. If there is no further surprises, Axis share price should be well-supported at the present level. Its recovery would have waited for a long while.