Serba Dinamik share price trajectory tied to special audit report


INVESTORS are seen shying away from Serba Dinamik Holdings Bhd for the time being pending the outcome of the Special Independent Review (SIR) report from Ernst and Young (EY), which is expected to be released in October. 

Hong Leong Investment Bank Bhd (HLIB) said the lack of interest is expected to persist until all Serba Dinamik’s audit issues have been clarified. 

“We are also wary that there has been a significant reduction of investor engagement after the revelation of recent events. 

“Even if the verdict of the SIR is to be in favour of Serba Dinamik, we reckon its share price may not return to its previous levels as institutional investors would factor in higher risk assessments due to corporate governance, be it perceived or otherwise,” stated its analyst Jeremie Yap. 

HLIB slashed Serba Dinamik’s financial year 2022 (FY22)-FY23 forecasts by 34% for both forward years under review as it trimmed its orderbook replenishment assumptions to RM3.5 billion and RM6.3 billion respectively (from RM9.6 billion and RM7.8 billion previously). 

“We maintain our ‘Sell’ recommendation with a target price of 24 sen (from 28 sen previously) based on 0.2 times FY22F (from 0.3 times FY21) book value per common share,” he added. 

Serba Dinamik which is embroiled in an audit dispute with its former external auditor KPMG recorded a RM14.92 million net profit for the group’s sixth quarter ended June 30, 2021 (Q6FY21) which was 86.84% lower than the RM113.32 million profit reported for the immediate preceding quarter.

Revenue fell 12.74% to RM1.21 billion, from RM1.38 billion in 5QFY21.

No comparative year-on-year figures were provided due to the group’s change in financial year-end from Dec 31 to June 30. 

The integrated oil and gas service provider appointed EY in July as its independent reviewer to assess the veracity of the audit issues raised by KPMG. 

Its independent non-EDs have been receiving progress updates from EY on a biweekly basis. Yap said Serba Dinamik’s 6QFY21’s net profit missed his full-year forecasts by 10%.

“Consensus estimates are not meaningful due to the distortion arising from the change in financial year-end from December to June.

“We derive 18MFY21 core net profit after adjusting for a RM17.7 million of foreign- exchange gain and a one-off gain of RM20 million from its repurchase of its sukuk programme,” he added.
He expected that no dividend was declared for the period while 18MFY21 dividends totalled up to 5.45 sen per share. 

“In June 2021, both Fitch Ratings and S&P Global Ratings downgraded Serba Dinamik’s rating — mainly to reflect its elevated refinancing risk for its US$222 million (RM930.18 million) sukuk, which is due May 2022. 

“With that, we will be taking a conservative stance by assuming no dividend payouts for FY22-FY23 as we strongly believe the group will need to preserve cash for working capital and managing its short-term debt maturities,” he wrote. 

Serba Dinamik’s net debt and gearing stood at RM3.4 billion and 0.89 times at end-June 2021 compared to a net debt and gearing of RM2.3 billion and 0.76 times at end-June 2020.