Kingboard answers idle chat, on one condition

Any hope that a statement from Kingboard Chemical Holdings might clear up some of the uncertainty surrounding the company was dashed yesterday.

Shares in the maker of paper-based, copper-clad laminates appeared to slide on uncertainty about potential provisions in the March 31, 1996, year-end results.

Upon the request of the stock exchange, the company issued the statement to confirm what the company's position was on the points of uncertainty.

On the face of it Kingboard chairman Cheung Kwok-wing denied the rumours regarding possible provisions relating to inventory and bad debts.

He denied there had been an accounting change at the company regarding the March 31, 1996 results. And he also denied price fluctuations for raw materials and end products over the financial period had any material impact on the company.

In the past few weeks analysts have become worried about their 1996 year-end net profit forecasts for Kingboard after interviews with the company. Analysts alleged they had been told of a $10 million provision on an inventory write down and a $5 million bad debt problem.

All this uncertainty saw the share price fall to 98 cents on Monday, having traded at a daily average of $1.384 over the previous month, according to Bloomberg.

The problem analysts have with the Kingboard's statement yesterday is the conditional nature of some of the points made.

On inventory, Mr Cheung said the company reviewed the adequacy of the amount of provision for inventory included in the accounts of the company at the interim stage, ending September 30, 1996. The company said it considered that adequate provision had been made. In this respect no further provision in the second half was needed, said Mr Cheung.

For analysts, however, this was all news. The company statement, on December 19, setting out the group interim figures made no mention of any inventory provisions or any prospect of any need for such a provision.

Can analysts assume there will be no provision on inventory in the final year-end result? There was no mention of any inventory provision in the interim statement. There is no need for any further provision in the second half either. This might lead an investor to assume the final accounts at Kingboard for the period ending March 31, 1996, will not include any inventory provision. Analysts are not sure though.

A similar problem exists when it comes to possible bad debts. Mr Cheung says adequate provision was made for this item in the interim accounts. Yet the interim statement makes no mention of bad debts. On the basis of the latest evidence, Mr Cheung says, no additional provision will be needed for bad debts in the second half. Therefore can it be assumed there will be no bad debt provision in the final accounts. Analysts do not know.

When reading all this stuff, an investor needs to bear in mind the company's year end is just 11 days away. So, by now, the directors should have a pretty good idea what is going to appear on the face of the final 1996 profit and loss account.

With all this doubt around, analysts were encouraged to see a March 15 report from Mr Cheung stating he had bought 2.15 million shares in the company at $1.04 each. Even if the worst fears of analysts are met at the year end, the stock's price earnings ratio would sit at an undemanding 6 times with a yield of about 5 per cent.

Given the potential for a turnaround this year some analysts are keen to see the continuing doubts at Kingboard cleared up so they can properly assess the group's prospects.