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Bourse directs SERBADK (5279): SERBA DINAMIK HOLDINGS BHD to undertake SIR

PETALING JAYA: Bursa Malaysia has directed Serba Dinamik Holdings Bhd, which has yet to officially appoint an independent reviewer to undertake a special independent review (SIR) to address the concerns raised by KPMG, by Friday.

In this connection, under paragraphs 2.23 and 2.24 of the Main Market Listing Requirements, Bursa Malaysia said it issued a directive to the company to appoint by July 2, 2021 an international accounting firm or and accounting firm, with an international affiliation, that has adequate experience and resources, to undertake the SIR to address the concerns raised by KPMG.

The directive also requested the company to ensure that the appointed accounting firm or its affiliates have a presence in Bahrain and such other overseas locations, where the customers and suppliers Serba Dinamik are located, as highlighted by KPMG.

In addition, Serba Dinamik also has to ensure the scope for the SIR is as agreed between the audit committee and Ernst & Young, and allow the appointed accounting firm to undertake the SIR and report directly to Bursa Malaysia and the Securities Commission periodically on the progress of the SIR and the findings upon completion of the SIR.

EPF, Serba Dinamik’s third-largest shareholder, has been reducing its holdings since the issue came to light. It now owns a 7.6% stake in the company, down from 10.2% on June 3.EPF, Serba Dinamik’s third-largest shareholder, has been reducing its holdings since the issue came to light. It now owns a 7.6% stake in the company, down from 10.2% on June 3.

Ernst & Young Advisory Services Sdn Bhd has conditionally agreed to conduct the SIR subject to cooperation from KPMG on the audit matters.

The ongoing uncertainty surrounding Serba Dinamik has seen its share continue to slide as uncertainties over corporate governance-related issues cloud sentiment on the stock.

The management of the integrated oil and gas services provider has reiterated that business is as usual despite on-going statutory audit issues.Business-wise, the group continues to show earnings growth with core profit for the quarter ended ended March 31, 2021 at RM113.3mil coming in within expectations.

In terms of job flow, it has an outstanding orderbook of RM18.7bil as of March.

However, these could not lend support to its share price, which ended yesterday at a new all-time low of 32.5 sen – down 8.5 sen or 20.73% from Friday’s closing.

Last Friday, Serba Dinamik saw several independent directors collectively resigning following the company’s legal action against its external auditor KPMG.

Until the matter is addressed convincingly, analysts said it will continue to weigh on sentiment despite the relative attractiveness of the stock from a forward-earnings standpoint.

“Core profit appears to be in line but we see higher risks on corporate governance and stakeholder engagement issues, ” said UOB Kay Hian (UOBKH) in a report where it downgraded the stock to a “sell” with a 20 sen target price from 70 sen before.

The resignation of KPMG as auditor, even though no reasons of fraud or malpractice were mentioned, will inevitably affect the oil and gas firm’s ability to close its audit completion period, said UOBKH.

Serba Dinamik has not completed the hiring of its independent auditor and it will need more time to engage a new auditor. Hence, UOBKH said it is unsure if the group can complete its financial year 2021 audited report by the targeted September timeline.

Another thing to watch is the update of the credit watch of its rating agencies.

UOBKH said based on its calculations, Serba Dinamik’s net gearing had improved from 0.9 times to 0.8 times q-o-q, while its net-debt to ebitda (earnings before interest, taxes, depreciation, and amortisation) ratio, which is the key ratio monitored by its debt agencies, had also improved from 2.7 times to 2.6 times q-o-q.

“According to its financial statement, there was no major stress in receivables with 3% past due by over 120 days.

“However, our early company update has slashed its forecasts as we followed the views of the rating agencies, namely Fitch Ratings and S&P that the group may face near-term funding issues if its audit issues and reputational risks remain unresolved, ” it said.

Public Investment Bank Research maintains a “neutral” call on the stock, while Kenanga Research has it “under review” as the unfolding recent events puts Serba Dinamik’s corporate governance under scrutiny. As such, “short of it releasing its fully audited accounts, the group’s corporate governance and reliability of its reported financial statements may remain a point of contention, ” it said in its note to clients.Moving forward, TA Research sees the group entering into a capital intensive phase in the coming months on the back of significant projects, including the US$1.8bil (RM7.47bil) engineering, procurement, and construction contract for Block 7 IT-focused innovation hub in Abu Dhabi, UAE.

In March this year, the group acquired a 49% stake in Block 7 project, which is now at the conceptual master planning design stage and awaiting authority approvals.

“The group’s 49% ownership in this massive four-year project translates to capital outlay of at least RM3.7bil. The urgency to raise capital is exacerbated by the need to refinance RM1.7bil of debt maturities before May 2022, ” said TA.

Yesterday, Bloomberg reported that the Employees Provident Fund (EPF) was “gravely concerned” over the latest developments, which has caused a significant loss in shareholders’ value.

In an email statement the news agency, the pension fund urged the board to urgently proceed with the conduct of an independent review and take action to resolve all outstanding issues.

The developments include the departure of four directors and the resignation of KPMG as Serba Dinamik’s auditor, the EPF said.

EPF, Serba Dinamik’s third-largest shareholder, has been reducing its holdings since the issue came to light.

It now owns a 7.6% stake in the company, down from 10.2% on June 3.

Analysts note that post-audit findings, Serba Dinamik has implemented various measures in an attempt to restore investor confidence.

In spite of KPMG’s resignation, Bursa Malaysia requires that the independent review must still proceed.

The scope of the review must specifically address, to the satisfaction of the exchange, the issues raised by KPMG.

Shares of Serba Dinamik Holdings Bhd continued to slide as uncertainties over corporate governance-related issues cloud sentiment on the stock.

The management of the integrated oil and gas services provider has reiterated that business is as usual despite on-going statutory audit issues.

Business-wise, the group continues to show earnings growth with core profit for the quarter ended ended March 31, 2021 at RM113.3mil coming in within expectations. In terms of job flow, it has an outstanding orderbook of RM18.7bil as of March.

However, these could not lend support to its share price, which ended yesterday at a new all-time low of 32.5 sen – down 8.5 sen or 20.73% from Friday’s closing.

Last Friday, Serba Dinamik saw several independent directors collectively resigning following the company’s legal action against its external auditor KPMG.

Until the matter is addressed convincingly, analysts said it will continue to weigh on sentiment despite the relative attractiveness of the stock from a forward-earnings standpoint.

“Core profit appears to be in line but we see higher risks on corporate governance and stakeholder engagement issues, ” said UOB Kay Hian (UOBKH) in a report where it downgraded the stock to a “sell” with a 20 sen target price from 70 sen before.

The resignation of KPMG as auditor, even though no reasons of fraud or malpractice were mentioned, will inevitably affect the oil and gas firm’s ability to close its audit completion period, said UOBKH.

Serba Dinamik has not completed the hiring of its independent auditor and it will need more time to engage a new auditor. Hence, UOBKH said it is unsure if the group can complete its financial year 2021 audited report by the targeted September timeline.

Another thing to watch is the update of the credit watch of its rating agencies.

UOBKH said based on its calculations, Serba Dinamik’s net gearing had improved from 0.9 times to 0.8 times q-o-q, while its net-debt to Ebitda (earnings before interest, taxes, depreciation, and amortisation) ratio, which is the key ratio monitored by its debt agencies, had also improved from 2.7 times to 2.6 times q-o-q.

“According to its financial statement, there was no major stress in receivables with 3% past due by over 120 days.

“However, our early company update has slashed its forecasts as we followed the views of the rating agencies, namely Fitch Ratings and S&P that the group may face near-term funding issues if its audit issues and reputational risks remain unresolved, ” it said.

Public Investment Bank Research maintains a “neutral” call on the stock, while Kenanga Research has it “under review” as the unfolding recent events puts Serba Dinamik’s corporate governance under scrutiny. As such, “short of it releasing its fully audited accounts, the group’s corporate governance and reliability of its reported financial statements may remain a point of contention, ” it said in its note to clients. Moving forward, TA Research sees the group entering into a capital intensive phase in the coming months on the back of significant projects, including the US$1.8bil (RM7.47bil) engineering, procurement, and construction contract for Block 7 IT-focused innovation hub in Abu Dhabi, UAE.

In March this year, the group acquired a 49% stake in Block 7 project, which is now at the conceptual master planning design stage and awaiting authority approvals.

“The group’s 49% ownership in this massive four-year project translates to capital outlay of at least RM3.7bil. The urgency to raise capital is exacerbated by the need to refinance RM1.7bil of debt maturities before May 2022, ” said TA.

Yesterday, Bloomberg reported that the Employees Provident Fund (EPF) was “gravely concerned” over the latest developments, which has caused a significant loss in shareholders’ value. In an email statement the news agency, the pension fund urged the board to urgently proceed with the conduct of an independent review and take action to resolve all outstanding issues.

The developments include the departure of four directors and the resignation of KPMG as Serba Dinamik’s auditor, the EPF said.

EPF, Serba Dinamik’s third-largest shareholder, has been reducing its holdings since the issue came to light.

It now owns a 7.6% stake in the company, down from 10.2% on June 3.

Analysts note that post-audit findings, Serba Dinamik has implemented various measures in an attempt to restore investor confidence.

In spite of KPMG’s resignation, Bursa Malaysia requires that the independent review must still proceed.

The scope of the review must specifically address, to the satisfaction of the exchange, the issues raised by KPMG.

In a statement, Bursa Malaysia said Serba Dinamik has yet to officially appoint an independent reviewer to undertake a special independent review (SIR) to address the concerns raised by KPMG.

In this connection, under paragraphs 2.23 and 2.24 of the Main Market Listing Requirements, Bursa Securities said it had issued a directive to the company to appoint, by 2 July 2021, an international accounting firm or and accounting firm, with an international affiliation, that has adequate experience and resources, to undertake the SIR to address the concerns raised by KPMG;

The directive also requested the company to ensure that the appointed accounting firm or its affiliates have a presence in Bahrain and such other overseas locations, where the customers and suppliers Serba Dinamik are located, as highlighted by KPMG.

In addition, Serba Dinamik also has to ensure the scope for the SIR is as agreed between the audit committee and Ernst & Young; and allow the appointed accounting firm to undertake the SIR and report directly to Bursa Malaysia and the Securities Commission Malaysia periodically on the progress of the SIR and the findings upon completion of the SIR.
 

https://www.thestar.com.my/business/business-news/2021/06/29/bourse-directs-serba-dinamik-to-undertake-sir

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