Hot stock: mm2 Asia down 11.11% after auditor notes material uncertainty

SHARES of entertainment group mm2 Asia dived 11.11 per cent on Wednesday after the group on Tuesday said its independent auditor noted a material uncertainty regarding the group's ability to continue as a going concern.

The counter hit an intraday low of 6.5 Singapore cents, down 19.7 per cent or 1.6 cents as at 9.17am, and was one of the most actively traded by volume when the market opened.

mm2 Asia's shares eventually closed 11.11 per cent or 0.9 Singapore cent lower at 7.2 Singapore cents on Wednesday, with 142.2 million shares changing hands.

The material uncertainty over the group's ability to continue as a going concern was in view of the latest financial year's net loss and its liabilities exceeding assets, the mainboard-listed firm said in a bourse filing.

The observation is part of Nexia TS Public Accounting Corporation's unmodified audit opinion in its report on the group's audited financial statements for the year ended March 31, 2021. The auditor's opinion remains unqualified.

In its report, the auditor drew attention to the group's net loss of S$99.5 million, compared to its net profit of S$6.3 million the year before, as well as its current liabilities exceeding current assets by S$119.5 million.

These conditions "indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern", said the auditor.

mm2 Asia said its financial statements have been prepared on a going concern basis as the group and company will be able to meet its liabilities "as when they fall due".

The group also noted that it is on the road of recovery from the pandemic, as its segmental businesses generated 73 per cent of total revenue in the second half ended March 31, 2021, compared with 27 per cent in the first half ended Sept 30, 2020.

Subsidiary mm Connect also plans to seek an initial public offering in the financial year ending March 31, 2022 - which will be a potential source of funding available in the 12 months.

Through mm Connect, mm2 Asia owns eight cinemas in Singapore under the Cathay brand, and 14 cinemas in Malaysia under the Cathay Cineplexes Malaysia, Mega Cinemas and Lotus Fivestar brands. The subsidiary also owns a film distribution business and an online streaming business.

Moreover, the group is negotiating with a financial institution to refinance up to S$123 million of its existing borrowings and obtain a new credit facility amounting to S$25 million for working capital purposes.