by PRIYA VASU / pic by TMR FILE
THE price action in Serba Dinamik Holdings Bhd shares reflect the urgent need to appoint an independent firm to undertake a special independent review to assess the veracity and accuracy of the concerns raised by its external auditor KPMG PLT, as the question mark on the group’s accounts triggers suspicion over its corporate governance and by extension its reputation.
Serba Dinamik’s shares fell some 30% or 48 sen yesterday — the biggest move since the company’s IPO on Feb 8, 2017 — after the counter resumed trading yesterday since it was halted last Thursday.
The company is scheduled to report earnings on June 4.
Although its management has tried to defend itself, Serba Dinamik’s shares were continuously trodden by negative sentiment as investors sought to exit.
The stock opened limit down or 48 sen lower at RM1.13 yesterday with the single price quote becoming the high and low for the remainder of the trading day, indicating stockholders have one one thing on their mind — sell.
The price action yesterday suggests selling pressure is set to continue today and could see the counter becoming a penny stock again.
The KPMG action comes as auditing firms too have come under extreme scrutiny over their transparency and quality of work after one of the Big 4, Deloitte PLT, was fined for breaches involving scandal-ridden 1Malaysia Development Bhd.
“As such auditing firms are not taking any chances and in-fact extra cautious to report any irregularities in companies’ audit reports,” a market analyst told The Malaysian Reserve (TMR) yesterday.
Serba Dinamik has built a strong following with analysts and institutional investors since its listing, thus putting the spotlight on major shareholder and group MD Datuk Mohd Abdul Karim Abdullah (picture) in corporate Malaysia.
He has also emerged as a major shareholder in KPower Bhd and Sarawak Consolidated Industries Bhd (SCIB) since Serba Dinamik was listed. He owns 37.01% in SCIB and 32.14% in Kpower.
KPower and SCIB shares have been caught in the crosswinds of what is transpiring at Serba Dinamik. Following the red flag raised by KPMG, KPower fell the most in 14 months from RM1.31 to RM1.08 at yesterday’s close, while SCIB shares were down the most in four months by 24.5 sen to 90.5 sen.
“The market is concerned Mohd Abdul Karim might have pledged his shares in Serba Dinamik to raise money to buy the stakes in KPower and SCIB. Some investors are concerned that the lenders may sell the pledged shares if he is unable to meet any margin call, which will only add to the selling momentum on Serba Dinamik,” said an analyst.
The drop in share price value of the three companies wiped out some RM487 million in share value held by Mohd Abdul Karim yesterday alone.
“The company’s (Serba Dinamik) cashflows do not reflect its strong work/orderbook despite the tougher operating environment caused by the Covid-19 pandemic. So, when KPMG raised the red flag about its receivables, this probably panicked investors, leading to the strong selling pressure,” a trader with a local brokerage said.
To accommodate the audit process, Serba Dinamik has changed its financial year end to June 30, 2021, from Dec 31, 2020.
“We changed our dates because we need to have ample time to complete the outstanding audit matters due to the challenges caused by Covid-19 in our global-wide operations,” said Mohd Abdul Karim to text queries by The Malaysian Reserve yesterday.
There were four issues highlighted by the existing auditor involving sales transactions, trade receivables balance and materials on-site balance totalling RM3.2 billion, RM751 million and RM569 million respectively.
Serba Dinamik’s briefing on Saturday attracted some 350 participants as its management addressed queries such as the status of the existing auditor and investigation by the Securities Commission Malaysia (SC).
“While we think issues have been adequately addressed by management with prompt action taken, we believe concerns over corporate governance-related risks will remain until this issue is resolved convincingly,” said Public Investment Bank Bhd in a research report yesterday.
Minority Shareholder Watchdog Group (MSWG) has urged minority shareholders of Serba Dinamik to vote against the proposed resolution to remove KPMG as the external auditor of the company.
“It’s the right of the shareholders either to defend or reject the decision to remove the KPMG as auditors. Similarly with MSWG,” said Mohd Abdul Kareem.
The market analyst told TMR that the red flag raised by KPMG at very least should be the basis for questioning if any fraudulent activity occurred.
“By focusing on the finalisation of an independent review firm to comb through all the issues raised by KPMG, only then Serba Dinamik could restore investors’ confidence and its own reputation.”