KUALA LUMPUR: Kenanga research is mildly negative on the news that CB Industrial Product Bhd had received a qualified audit opinion from its external auditors.
The research house said in a note that the news might create short-term misperception towards the stock but believes there will be minimal impact to FY18 numbers.
To recap, CBIP announced that it had received a qualified audit opinion from its external auditors, Messrs Crowe Malaysia PLT due to the unavailability of audited financial statements and auditors' report for its associates and a joint venture.
This was mainly owing to a delay in completion of the associates and JV's management accounts from the adoption and transition to the new Malaysian Financial Reporting Standards.
"However, we wish to clarify that for CBIP itself, there has been no issue with its own set of financial statements, and the delay in the completion of the associates and JV’s management accounts should pose minimal impact to FY18 numbers," said Kenanga.
CBIP also announced separately that it had acquired 63.67 million shares, while its 80% owned TPG OIl & Gas Sdn Bhd had acquired 6.33 million shares in Gulf Lubes Malaysia Sdn Bhd, giving the group an aggregate stake of 70% for RM2.11mil cash.
Kenanga said despite their long-term potential, the biodiesel plants would run at suboptimal capacity currently as they require refurbishment before commencing its maiden production, and is expected to remain loss-making in FY19.
"Based on our 30% utilisation rate assumption for its biodiesel facility, and a biodiesel price of RM2.30/litre, we estimate that Gulf Lubes would contribute c.RM8.0 loss after tax and minority interests (LATAMI) in FY19," it said.
Kenanga downgraded the counter to market perform with a lower target price of RM1.10.
