KUALA LUMPUR (May 6): China Ouhua Winery Holdings Ltd today gives assurance that the deposit of RMB118.8 million paid to China's Huangwu Subdistrict Office for a proposed RMB132 million acquisition of all the land and buildings and ancillary facilities in Yantai City, China, will be recoverable in the event the proposed deal falls through.

"The company has been dealing directly with officers of Huangwu Subdistrict Office and is monitoring closely (the deal) to expedite the transfer of property ownership," the China-based winery said in a filing with Bursa Malaysia today.

"The management envisaged there shall be no issues for the issuance of the land title and Huangwu Subdistrict Office had also indicated its intention to complete the transfer of property ownership as soon as possible and to receive the final payment," it added.

In explaining the delay in the completion of the proposed acquisition, China Ouhua (fundamental: 1.2; valuation: 0.9) said the expected completion date as stated in the sale and purchase agreement (SPA) signed between Huangwu Subdistrict Office and the company was by April 2014.

"However, shortly after execution of the SPA, the Land Commission of Central Government of China had embarked on an exercise to conduct audit on all land titles in the entire China and thus de-prioritised the processing of all applications relating to land matters.

"At this juncture, the board is unable to ascertain the expected completion date as the duration to be taken for the transfer of property ownership is reckoned to be hard to determine," said China Ouhua.

The completion of the acquisition has been delayed for more than a year. The company entered into Sale & Purchase agreement with Huangwu Subdistrict Office in December 2013.

On April 30, China Ouhua's external auditor, Messrs Helmi Talib & Co had issued a qualified audit opinion on the company’s audited financial statements for the financial year ended Dec 31, 2014.

It said the basis for its qualified opinion was due to the absence of an independent valuation of the assets to be acquired by China Ouhua.

"In the absence of an independent valuation, we were unable to ascertain whether the net recoverable amount of the assets acquired will exceed the total purchase consideration," said Helmi Talib & Co.

"In addition, we have been not able to obtain sufficient appropriate audit evidence to satisfy ourselves of the extent of recoverability of the deposits of RMB118.8 million in the event the transaction is not completed.

"Consequently, we were unable to determine whether the carrying amount of deposits is fairly stated as at Dec 31, 2013," it added.

This is not the first time that China Ouhua’s auditors have expressed qualified audit opinion on the matter.

China Ouhua shares closed unchanged at 8 sen today, bringing a market capitalisation of RM53.44 million.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)