Tranmil's results for FY2006 & FY2005 in doubt

The preliminary finding of the Special Audit of Tranmil’s accounts by Moores Rowland has revealed the following:

1. Tranmil might have overstated its turnover for FY2006 by RM530mil. If it were to make full provision for this overstated revenue, its unaudited group pre-tax profit for FY2006 would fall by RM333mil and consequently, reflect a pre-tax loss of RM126mil, instead of a pre-tax profit of RM207mil

2. It might have also overstated its turnover for FY2005 by an undisclosed amount. Again, if full provision were to be made in respect of this overstated revenue, its group pre-tax profit for FY2005 would fall by RM197mil and consequently, reflect a pre-tax loss of RM77mil, instead of a pre-tax profit of RM120mil.

The reversal of the 2 years' bottomline (totaling RM530mil) would impact Tranmil's shareholders' funds, which stood at RM1.410bil as at 31.12.2006. Assuming no further adjustment & ignoring tax impact, Tranmil's shareholders' funds might drop to RM880mil (or, its NTA per share dropping from RM5.27 to RM3.33).

From the weekly chart (Chart 1), we can see that the next support will be at RM7.60/70. I doubt this support would hold up Tranmil share price in the face of the massive loss that it has to book in FY2006. Tranmil share price rose from as low as RM2.30/40 in April 2003 to a high of RM15.20 in January 2007 (see the monthly chart, Chart 2 below).


Chart 1: Tranmil's weekly chart as at May 30 (courtesy of Quickcharts)


Chart 2: Tranmil's monthly chart as at May 30 (courtesy of Quickcharts)