AMID a murky prospect due to a myriad of unknowns, TA Securities Research has ceased its coverage on Serba Dinamik Holdings Bhd with its “sell” recommendation at 25 sen intact.
“We do not completely rule out the possibility that we may re-initiate coverage in future. This is if given a blue skies scenario, including complete vindication of Serba’s financial integrity and corporate governance standards,” justified analyst Kylie Chan Sze Zan in a company update.
“Therefore, for now, on the back of weak sentiment, we take a step back to err on the conservative.”
Among others, the research house reasoned that there has been disconcerting matters raised by Serba Dinamik’s former external auditor KPMG PLT.
Based on KPMG’s audit findings, the alleged dubious balance sheet items comprised (i) receivables of RM652 mil from 11 customers and US$24 mil from a Bahrain customer/supplier; and (ii) RM569 mil inventory of materials-on-site from the aforementioned 11 customers.
“In addition, unverified sales amount includes RM2.32 bil from the 11 customers, and US$101 mil from the Bahrain customer,” TA Securities Research pointed out. “Lastly, KPMG was unable to ascertain the validity of Serba’s IT (information technology) contracts, including its recognition of revenue.”
Moving forward, the research house may re-initiate coverage on Serba Dinamik if:
- The special independent review (SIR) reveals positive outcome and KPMG’s audit findings are proven wrong by EY (Ernst & Young Consulting Sdn Bhd).
- Nexia SSY (Serba Dinamik’s new external auditor) reinforces the company’s integrity in the upcoming FY2021 annual report;
- Financiers (including bondholders), clients, investors, vendors, authorities (ie the Securities Commission and Bursa Malaysia), and other stakeholders are assured and confident of Serba Dinamik’s corporate governance and financial strength; and
- Business as usual with rapid order book replenishment and robust earnings.
Serba Dinamik was last transacted at 35 sen at the close of Oct 22’s mid-day trading, which gave the company a market capitalisation of RM1.31 bil. – Nov 12, 2021
