CMSB: Another Irregular Affair

Another stock which has been hit with financial irregularity is CMSB. On April 22, CMSB’s Deputy Chairman resigned from the company amid allegations of conflict of interest (here). Shortly thereafter, its CFO was suspended on May 5 (here).

CMSB’s management did the right thing to quickly appoint KPMG to probe the allegations of financial mismanagement in relation to its investments and operations (here). This sent a strong signal to the market that the management is working to resolve the problem, if any.

Two days ago, two of its non-executive directors, Yam Kong Choy and Ho Heng Chuan resigned from the company (here). This development threw a spanner in the works. Why did these 2 non-executive directors resign from the board? Is the financial mismanagement in CMSB bigger than expected? Are there other serious problems in the company?

Meanwhile the share price has continued to decline. It went below the uptrend line, AB at RM1.28. It may revisit the Oct-Nov 2020 low of RM1.06.

Chart: CMSB's daily chart as at Jun 23, 2021_2.45pm (Source: Kenanga's BTX)

Hopefully by then, the KPMG probe would have been completed, and the management of CMSB can announce its plans to tackle any problem or weaknesses that have been unearthed.

CMSB is a solid conglomerate with exposure to good business segments that benefit strongly from continued economic development in the State of Sarawak. The shareholders of CMSB are well-aware of its major shareholder’s political connection. Whatever the stance of the investors on this political connection, no one can deny that the connection has benefited the group as much as it has weighed down on the share price generally, except for periods of heightened political interest ahead of election times.

Until the dust has settled, it is best to avoid the stock for now. If you are however stuck with it, the share price is low enough that you might as well just hang onto the shares. After all, the management appears to be ready to bite the bullet even though the resignation of the 2 non-executive directors has raised more questions about the seriousness of the financial mismanagement in CMSB.