Analyst upgrades the company’s stock to ‘Hold’ from ‘Sell’, with an unchanged TP of 78 sen
by LYDIA NATHAN / Pic by TMR GRAPHIC
SERBA Dinamik Holdings Bhd’s moves to appoint an independent reviewer and new board members are viewed as positives and a symbol of commitment by the company to clear issues highlighted by its external auditor.
Hong Leong Investment Bank Bhd analyst Low Jin Wu upgraded Serba Dinamik’s stock to ‘Hold’ from ‘Sell’, with an unchanged target price (TP) of 78 sen on the above action taken by Serba Dinamik’s management on Monday.
“While Serba Dinamik has taken positive steps forward with regards to its governance framework, we believe the stock will remain volatile until its audit matters are resolved,” Low noted in a report yesterday.
Low added that since Serba Dinamik’s share price has fallen below his TP, he has upgraded the counter to ‘Hold’ from ‘Sell’, with an unchanged TP of 78 sen based on an unchanged 0.7 time financial year 2022 book value per share.
Low believes the appointment of Ernst & Young Advisory Services Sdn Bhd (E&Y) as an independent reviewer is a positive step due to its credibility as one of the Big Four accounting firms.
He further noted that the appointment of Masleena Zaid, the managing partner of Messrs Masleena, Yee & Partners, is a positive step for Serba Dinamik as she was previously with the Companies Commission of Malaysia from July 2008 to December 2009 and a prosecuting officer at the Securities Commission of Malaysia between February 2001 and June 2008.
“We read this move as a signal that Serba Dinamik is committed to proving the company is free from any wrongdoing,” he said.
Low wrote that the independent audit would take at least three months to complete and “we believe investors would not be ready to jump the gun completely just yet”.
He said the recent steps taken by Serba Dinamik was a display of confidence to shareholders. Volatility in Serba Dinamik’s share price will ensue until the accuracy and veracity of the accounting matters are resolved, Low noted.
Serba Dinamik’s shares fell 6.5 sen to 68 sen yesterday after rising some 14 sen on Monday on the appointments of new board members and E&Y as an independent reviewer.
Meanwhile, Malaysian Institute of Corporate Governance (MICG) deputy president David W Berry said E&Y’s review should not involve a full re-audit of the company.
He said the naming of E&Y is subject to finalisation of details and the key factor will be the scope of the advice sought, which should be restricted to the specific audit issues raised by KPMG PLT.
“The independent E&Y opinion should apply the same professional standards expected of any auditor in assessing its stance on those audit issues.
“Any difference will be in the weight given to the surrounding factors,” Berry said in a statement yesterday.
He said the “second opinion” should be sufficient. Whether E&Y agrees with the KPMG opinion, he said both opinions should be made available to shareholders.
He further said the board, especially the independent directors, should also express their views.
Berry said it is difficult to tell if the matters would resolve as it will depend on E&Y opinion.
“MICG continues to be of the view that any director who is also a shareholder should not participate in any shareholder vote related to this matter or the choice of the company’s auditor,” he added.
On Monday, Serba Dinamik announced three new independent non-EDs, namely Johan Mohamed Ishak, Datuk Mohamed Ilyas Pakeer Mohamed and Masleena, effective last Friday.
Structure-wise, Minority Shareholders Watch Group CEO Devanesan Evanson told The Malaysian Reserve that more independent directors on board would mean better corporate governance.
He said E&Y and the new independent non-EDs have no baggage as they are independent newcomers. Hence, they should be able to look at things independently and objectively.