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Wednesday, October 1, 2014

REDtone slips over RM15.6m third-party debt issue (Star)

REDtone International Bhd’s shares slipped to a low of 78 sen on Wednesday after its external auditors expressed a qualified opinion in their report over a RM15.6mil third-party debt.

The company had announced that Messrs. Crowe Horwath, the company’s external auditors, have expressed a qualified opinion in their report over the debt for the financial year ended May 31, 2014.

However, REDtone’s board was confident the amount was recoverable and accordingly no impairment has been made in the financial statements.

Had an adjustment for impairment on these other receivables been made, the carrying value of other receivables would decrease by same amount for the group. Similarly profit for the year and retained profits would decrease similarly by the effects of this impairment for the group.

Kenanga Investment Bank Research said it was caught by surprise over the issue.

“While management strongly believes the amounts are recoverable despite being long outstanding, the news is expected to cause some negative consequences to the share price, at least in the near term.

“We understand that the group had earlier targeted to apply for a transfer to Main Board listing following the release of its FY14 audited account. Nevertheless, in view of the above qualified opinion made by the external auditor, we expect some hiccups during the process,” it said.

Kenanga Research believed REDtone’s businesses were not expected to see any material impact should the group fail to transfer its listing status.

“REDtone’s near-term catalysts include: (i) synergistic benefits that could be created under the NSA
agreement with Maxis, and (ii) continuous government & corporate data-related projects. On the
flip side, negative sentiment could arise on: (i) further impairment and (ii) failure to transfer to Main Board listing.

The research house kept its market perform call on the company and also the target price at 77 sen based on unchanged FY15 targeted price-to-earnings ratio of 14.5 times (+0.5 standard deviation).

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