Serba Dinamik fights to clear its name amid mounting odds

IT is an open secret that this has been a tumultuous week for Serba Dinamik Holdings Bhd, especially with RM3.15 bil or 52.5% being wiped out from its market capitalisation following developments linked to the flagging of some accounting matters by its external auditor KPMG PLT in relation to the company’s FY2020 financials.

Analogically, the global oil & gas (O&G) integrated engineering services provider needs ‘massive water source to douse a towering inferno’.

Not only that restless shareholders must be convinced that there exist an escape route but more importantly, the company must clear its name fast given the massive odds stacked against it

At this juncture, how many investors would actually take a step back to celebrate the company’s strong presence in 20 countries, its workforce of 1,766 across all segments of its operations and its major project breakthroughs that have roped in a vendor and supplier base totalling 770 companies?

“We’ve been a business partner and supplier to many satisfied customers, hence it is very unlikely that out business relationship will crumble overnight because of the current issue,” a top management personnel told FocusM on condition of anonymity.

“In all fairness, by stripping out the audit issue saga, Serba Dinamik remains a fundamentally sound entity.

“We have nothing to hide and had even taken prompt action to address all the queries raised by KPMG within three days after the matters were brought up on May 3. It is KPMG which has yet to revert since or does not provide any direct or immediate timeline to conclude its audit.”

More proactive INEDs

Recall that on the weekend of May 29, Serba Dinamik staged a last minute separate briefing sessions for analysts/fund managers and the media to detail out the chronology of events while doing its utmost best to explain and clarify the impending issues in a good way.

“The management is also working hand-in-hand with our independent non-executive directors (INEDs) by listening to their views on how we can better improve our accounting mechanism,” said the source.

In a late statement on Thursday, the INEDs had come out in the open to voice concern over recent events which have taken the company by storm.

Chief among the message of the seven-paragraph statement is that the composition of the independent committee to assess the veracity and accuracy of the matters raised by KPMG shall have no representation from the management to ensure its independence.

The source further reaffirmed that it has been BAU (business as usual) with no disruption to both the company’s operations as well as any banking facilities, including cash flow.

To be fair to both parties, the accounting issues which surfaced in Serba Dinamik’s FY2020 audit had very much been exacerbated by difficulties in completing the audit process due to movement restrictions across all its domestic and overseas operations owing to the impact of COVID-19.

KPMG as the existing auditors was unable to perform appropriate audit procedures to obtain sufficient and appropriate audit evidence. Additional reviews were requested despite concerns that were already addressed by management.

This has also led the group to change its financial year-end from Dec 31, 2020 to 18 months ending June 30, 2021 – a move that can provide the group to more breathing space to finalise its financial statements as well as to facilitate better audit planning and allocation of resources to manage the peak financial reporting period.

Given the above circumstances, the appointment of an independent third-party auditor will help provide a special independent review to assess the veracity and accuracy of the matters.

Unfortunately for Serba Dinamik, investor sentiment will be dampened with integrity of the company’s financial statements, transactions and even operations becoming questionable in the eyes of investors – both big and small.

For now, constant engagements with its four top institutional investors are vital to prevent the funds from resorting to stock dumping in the name of ESG (environment, social and governance) breaches.

Pacifying major shareholders

On Wednesday (June 2), Kumpulan Wang Persaraan (Diperbadankan) (KWAP) has ceased to be a substantial shareholder of Serba Dinamik after the pension fund sold 26.03 million shares or 0.7% to bring down its stake to 4.53%.

KWAP is the first institutional fund that has sold shares in the company since news broke out that KPMG has raised red flags on its financial accounts for the year ended Dec 31, 2020.

Other institutional funds which hold substantial stake include Employee Provident Fund with 10.18%, Amanah Saham Nasional Bhd, a unit of Permodalan Nasional Bhd (PNB), and the State Financial Secretary Sarawak.

“Despite lingering uncertainties, the management is doing its utmost best to ensure that the company’s 15-month financial results will be announced without further delay (by end-June),” the source pointed out.

“Above all else, we’re always on the look-out for ways to give back to the society as evident in how we’ve spent close to RM5 mil in our myriad of COVID-19 CSR (corporate social responsibility) activities that entailed donation of personal protection equipment (PPE) (ie gloves and masks) and food in 2020 alone.”

To cushion the sell-down of its shares, head honcho Datuk Dr Mohd Abdul Karim Abdullah has himself acquired five million shares in the company he founded in 1993 on Monday (May 31) when the company resumed trading after having sought suspension for two trading days.

Non-independent non-executive director Datuk Abdul Kadier Sahib has further scooped up another three million shares in the open market on Friday (June 4) at an average price of 80.35 sen to raise his direct stake in Serba Dinamik to 602.9 million shares or 16.25%.

Prior to this, Abdul Kadier had bought eight million shares in Serba Dinamik this week alone.

At the end of Friday’s (June 4) trading, Serba Dinamik closed down 7 sen or 8.38% to 76.5 sen with 425.44 million shares traded, thus valuing the company at RM2.85 bil.

At this juncture, the company’s price-to-earnings ratio (PE) stands at 4.51 times with a dividend yield of 7.12% while its order book remains intact at RM19 bil excluding strong contribution from its IT segment. – June 6, 2020

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