Shares in Modern Beauty Salon Holdings slumped more than 20 per cent yesterday after the beauty services provider, which two months ago was expecting a significant profit rise, said net earnings for the last fiscal year actually declined.
Chairwoman and chief executive Joyce Tsang Yue said net profit growth turned out to be negative because of an accounting adjustment made by the auditor. She denied yesterday that the company had cheated small shareholders by earlier issuing a profit alert.
The results prompted a sell-off by disappointed investors, sending the stock down by as much as 23.4 per cent yesterday to close at HK$0.95.
Hong Kong-based Modern Beauty made the announcement on Wednesday night, saying net profit for the year to March fell to HK$82.2 million from HK$89.2 million a year earlier. Revenue grew 5.2 per cent to HK$756.6 million.
But on April 10, the company had filed a positive profit alert with the Hong Kong exchange, saying it expected 'a significant increase in profit' because of higher revenue in the last fiscal year.
A spokesman said revenue from the Hong Kong and mainland markets had increased by more than 50 per cent last year - before the auditor made the adjustment.
The company initially booked net earnings of HK$44 million for the year to March 2011. But this figure was later revised up by more than double to include profit from Zegna Management, a Singapore-based skincare services provider acquired by Modern Beauty in January.
But Modern Beauty had not explained changes to its balance sheets in any filings until it released its annual results on Wednesday.
The company has 29 beauty and spa centres in Hong Kong, 10 beauty and wellness centres on the mainland and is expanding its presence in Singapore and Malaysia with acquisitions. It proposed a final dividend of 4.25 cents per share.