Kingsmen Creative

Kingsmen Creative: auditor Ernst & Young, submitted a confidential report dated 11 Jan, to the Minister of Finance on the basis that EY has “reasons to believe that serious offences involving fraud or dishonesty have been committed against two subsidiaries” of the co. i) At Kingsmen Beijing, EY highlighted misappropriation by certain finance employees btwn 2009-11. Of the Rmb 614k involved, Rmb 467k has been recovered. The four employees have been dismissed. ii) At Kingsmen Exhibits (KE), the Audit Committee appointed EY to independently investigate certain alleged irregularities, involving KE, its employees and two subcontractors. Separately, mgt has estimated that the financial impact in relation to a commercial settlement agreement btwn KE and a subcontractor amounted to a loss of $1.5m. This compares with FY11 net profit of $16.8m. The Board will be appointing a reputable int’l acctg firm to conduct a complete review of the group’s internal controls and strengthen its risk mgt. Given that the issues do not appear to involve senior mgt, and the issues happened in the past, any further potential negative impact appears limited. The stock at last close trades at 2.2x P/B, 8.9x fwd P/E.