PENDING more clarity, concerns of corporate governance and financial integrity will weigh on Serba Dinamik Holdings Bhd following the recent flagging of some audit matters by auditor KPMG in relation to the company’s FY2020 financials.
Unless clarity emerges, this development will drag on sentiment as investors will not completely rule out the possibility that KPMG’s audit findings may turn out to be material and damning, according to TA Securities Research.
“At this early juncture – and given lack of granularity – the level of uncertainty remains high. We believe that investors require more details to be reasonably assuaged by management’s explanation,” suggested analyst Kylie Chan Sze Zan in a company update.
“As such, we prefer to err on the conservative and wait for further developments before turning positive.”
Serba Dinamik is in the midst of appointing an independent firm to commence a special independent review to assess the veracity and accuracy of the said matters.
“We understand from the management that as part of its annual audit process (started October 2020), KPMG has requested Serba Dinamik for assurances on risk factors,” revealed TA Securities Research. “The latter was identified earlier in April 2020 and officially submitted to the company in early-May 2020.”
In terms of timelines, Serba Dinamik targets to finalise the appointment of the independent firm and its review as soon as possible.
Additionally, the company’s management targets to finalise its FY2020 audited accounts by September and issue its annual report in October. Meanwhile, the group targets to release its upcoming quarterly results before end-June.
On the back of the latest development, TA Securities Research has downgraded Serba Dinamik’s to “hold” (from “buy” previously) with a lower target price of RM1.70 (from RM2.10 previously).
Hong Leong Investment Bank (HLIB) Research also concurred that uncertainties pertaining to the independent review process will bring about jitters to the stock as Serba Dinamik was the only company above the RM5 bil market cap to have received an independent audit request since the beginning of the movement control order (MCO).
“We have adjusted our earnings forecast to reflect the change in (the company’s) FYE (financial year-end from Dec 31 to June 30),” commented analyst Low Jin Wu following a conference call with KPMG (auditor).
“Hence, we have introduced new earnings forecast for 18M FY2021 (RM909 mil), FY2022 (RM803 mil) and FY2023 (RM845 mil).”
All-in-all, HLIB Research has also downgraded Serba Dinamik to “hold” (from “buy” previously) with a 37% slash in target price to RM1.45 (from RM2.30 previously).
“We have downgraded our target price based on 6.75 times price-to-earnings ratio (PE) from 13.5 times or 50% discount) on FY2022 EPS (earnings per share) to account for uncertainties regarding the independent review process,” justified the research house.
“Nevertheless, we believe that the stock would deserve a re-rating should the independent review process be done without any negative findings.”
Serba Dinamik has requested for a trading suspension of its stocks today pending the release of further clarification, according to a Bursa Malaysia filing. – May 27, 2021
