KUALA LUMPUR (June 3): Shares of London Biscuits Bhd rose as much as 15% in active trade this morning, after the company posted a 196.50% jump in its latest quarterly net profit.

At 11am, London Biscuits was traded at 34 sen — still up four sen or 13.33% from last Friday's close — for a market capitalisation of RM9.35 million. It gained in an overall negative market breadth, where decliners outstripped gainers at 435 versus 141, while 262 counters were unchanged at the time of writing.

With a total turnover of 9.31 million shares, London Biscuits came in fifteenth on Bursa Malaysia's top active list at the time of writing.

In view of London’s Biscuits's strong second quarter and cumulative six months earnings for the financial year ended March 31, 2019 (2QFY19), PublicInvest Research said the positive earnings surprise made up about 75.2% of its full-year estimate.

“Moving forward, we expect London Biscuits’s performance in the confectionery, potato, snacks and candies segments to continue its strong performance for the remaining quarters, backed by a stable order book, as well as the additional capacity from its potato chip production line,” the research house said in a note today. 

That said, the research house remains cautious and waits for the reaudit report for further clarity on the potential downside risk as highlighted by its external auditor. The assessment is expected to complete by the middle of July 2019.

Given current uncertainties on the downside risk, PublicInvest is keeping a "Neutral" call on the stock, with an unchanged target price from 53 sen. 

Messrs Nexia SSY, the external auditors of London Biscuits, said the company was unable to satisfy it by alternative means concerning the group's physical inventories held at Sept 30, 2018, which are stated in the statements of financial position of the group and the company at RM26.89 million and RM20.79 million respectively.

"We noted that there were significant and material transactions between the group and a customer and as explained in Note 29 to the financial statements, the operations were indicative of a related party relationship despite the absence of a legal nexus. Consequently, the inter-company transactions were adjusted and treated as related party transactions (RPT) to reflect the operational arrangements described in Note 29 to the financial statements," said Nexia SSY on Feb 22 this year.

Another concern identified by the external auditor included the group recognising an impairment of trade receivables of RM1.994 million for FY18, and RM60.39 million were adjusted retrospectively to comply with the impact of the group’s early adoption of MFRS 9.

On another note, London Biscuits had on Feb 15 proposed second private placement in less than one year which involved the issuance of up to 45.46 million new shares, representing up to 15% of its enlarged issued shares.

The private placement, which received shareholders’ approval on April 1, seeks to raise up to RM22.73 million to further pare down the group’s bank borrowings.