KUALA LUMPUR (Dec 29): Kuantan Flour Mills Bhd (KFM) saw its share price more than double yesterday on renewed hopes of a regularisation plan from the Practice Note 17 (PN17) company after it signed a memorandum of understanding (MoU) with Lotus Essential Sdn Bhd.

KFM shares closed nine sen higher at 18 sen after rising by as much as 23 sen earlier in the day. Its volume totalled 57.29 million shares, far exceeding the stock’s 200-day average volume of 603,449 shares. Its market capitalisation jumped to RM14.67 million ($4.7 million) from RM5.46 million on Tuesday.

A technical analyst said the rally in KFM’s shares could continue unless there is a negative development from the MoU with Lotus Essential, a company involved in the trading of steam coal, corn and tapioca starch.

“We have seen how KFM shares have fallen back after Felcra Bhd aborted its plan to take up equity in KFM.

“So, if we see something similar, the momentum would have been killed off. Otherwise, the share price could still run higher,” the analyst said.

“Currently, the resistance level should be at 24 sen to 25 sen while the support level could be seen at 17 sen,” he added.

KFM shares had plunged two weeks ago after Felcra retracted its interest in the flour miller. KFM had earlier announced that it had received a letter of interest from Felcra for a reverse takeover.

Mercury Securities Sdn Bhd head of research Edmund Tham said the interest in KFM shares yesterday was in all likelihood due to the hype from the MoU announcement.

Pointing out that the proposed investment in KFM by Lotus Essential has yet to materialise, he said the market should wait for further developments to gauge the impact of the deal.

In a filing with Bursa Malaysia on Tuesday, KFM said the MoU sets out the mutual understanding and intention of the parties to initiate discussions to enter into agreements.

“The parties are desirous to enter into a contract manufacturing and offtake agreement for the provision of flour milling activities by KFM to Lotus [Essential]; and consider a strategic investment by Lotus [Essential] into KFM,” it said.

As part of its proposal to re-structure its debt and reconstruct its business, KFM proposes to carry out an equity fundraising exercise via a rights issue and special issue of its shares, besides collaborating with Lotus Essential to carry out flour milling activities and trading of flour and food-related products.

On Dec 13, KFM applied to Bursa Malaysia for a six-month extension of the deadline to submit its regularisation plan.

KFM had been reporting losses over the past few years and was classified as a PN17 company on Dec 28 last year.

For the financial year ended Sept 30, 2016, it reported a net loss of RM12.09 million on revenue of RM3.92 million, as against a net loss of RM16.85 on revenue of RM24.86 million a year earlier.

Based on the information from the Companies Commission of Malaysia, Lotus Essential posted a net profit of RM217,024 on revenue of RM27.38 million for the financial year ended April 30, 2015. Its current assets stood at RM12.13 million, while its current ratio was 1.06, indicating the strength of its current assets.

In a separate filing, KFM said it has received two summons totalling RM235,232.10 from two companies which had provided it with services.

Gebeng Tyres & Services Sdn Bhd (GTS) had in a letter dated Dec 20 fi led a writ of summons and statement of claim for a sum of RM161,182.10 with an interest of 5% per year on the amount.

KFM had received the letter from GTS’ solicitors on Tuesday.

Meanwhile, DPO Malaysia Sdn Bhd, which provides services for the food industry, issued KFM a writ of summons and statement of claim on Dec 15 for a sum of RM74,050.

The summons also included interest on the sum at the rate of 18% per year from May 15, 2015 and interest on the judgement sum at the rate of 5% per year, KFM said.

In both cases, KFM is required to fi le a memorandum of appearance in court within 14 days from the date of service from the writs.

“Save for the outstanding payment sums due and legal costs in defending against the writs, the company is not expected to incur any further losses arising from the writs,” KFM said, adding that it is seeking necessary legal advice to remedy the situation.

This article appeared in Issue 2320 (Dec 29) of The Edge Financial Daily