Housing development company’s tax appeal allowed

KUCHING: A local housing de v e l op m e nt c omp a ny successfully appealed against tax treatments made following an audit by the Inland Revenue Board ( IRB).

Consequent to the tax audit, the IRB discovered and found that the housing development activities of the company had been inactive over the past few years.

Thus, the IRB said all expenses incurred relating to the housing development business in the years audited were disallowed for tax deductions.

As the company’s other investment incomes – like dividends, rent received in the years exceeded 80 per cent of its total gross income – the IRB treated the company as an investment holding company under Section 60F of the Income Tax Act ( ITA) 1967.

It also benefitted from higher output rising from revamp work on its older production lines.

“However, earnings dipped against last year and preceding quarter due to the sharp increase in raw material price by more than 80 per cent year on year.

“In addition, the company also incurred pre-operating expenses on new start-ups overseas as well as advertising and promotional costs for its new contact lens product launch overseas. Due to that, profit before tax margin contracted to 6.8 per cent versus 14.9 per cent last year.”

Kenanga Investment Bank Bhd (Kenanga Research) said looking ahead, additional expenses will be incurred over the next 12 months to gain a larger share of the global contact lens market.

However, due to the scant details, it was unable to ascertain further progress of these plants.

“Recall that a few quarters ago, we highlighted that the two plants are expected to ramp up capacity by 32 per cent to 23.2 billion, catering entirely to producing nitrile gloves and to be installed from the year of 2015 to 2016.

“Due to the poor visibility in terms of forward looking guidance and the weaker-thanexpected results, we downgrade FY17E and FY18E net profits by 26 and 11 per cent respectively to take into account the higher-thanexpected expenses incurred from its contact lens business.”

MIDF Research also downgraded its earnings forecast for Supermax’s FY17 and FY18F by 11.2 and four per cent respectively.

“We are revising our earnings forecasts as we increase our operating expenses assumptions for both years given that Supermax is expecting to incur further expenses with regards to its contact lens business.”