London Biscuits (LBB) has become an affected listed issue under PN17 of the Main Market Listing Requirements of Bursa Malaysia, this coming about following its recent default in loan payment to the Bank of Nova Scotia (BNSB). As with all other similar instances, LBB will now be required to submit a regularization plan to Bursa. Its share price, which has already been on a downtrend in recent days, could possibly weaken further in reaction to this development. We have yet to obtain clarity from management on the company’s financial prospects going forward following these recent developments, and as such caution for potential variations in our earnings estimates. While we keep it unchanged at this juncture, which also serves to keep the TP unchanged at 24sen (4x FY20 EPS) we maintain our Trading Sell call as the company’s financials remain subject to a limited re-audit (due to a separate issue) which poses downside earnings risks.

• To recap. BNSB’s claim on LBB is based on the interest on amount owing under Bankers Acceptance of RM1.83m and Operating Credit Facility of RM8m. LBB is currently engaging in active dialogue sessions with other lenders to minimize any further financial impact on the company. We are troubled at its cash flow constraints considering it has a fairly huge RM355m debt load (as at 31 March 2019).

Separately, Messrs PKF has been appointed to conduct an independent assessment of the key audit matters raised by the External Auditors for the financial year ended 30th Sept 2018. Please refer to our report dated February 25, 2019 for further details on this issue.

Source: PublicInvest Research - 9 Jul 2019