Summary

• The latest update pertaining to audit matters resulted in the resignation of external auditor; KPMG. The move came as KPMG is unable to independently continue the audit engagement and discharge their professional duties as auditor of Serba Dinamik Holdings Bhd (Serba Dinamik) with immediate effect.

• For the time being, Serba Dinamik is engaging with Ernst & Young (EY) on the appointment of a special independent audit review which may see the appointment taking place today (after some delay due to the change of scope works). The delay came as Serba Dinamik has filed a civil claim against KPMG for alleged negligence, as well as breach of contract and statutory duties.

• With the current on-going uncertainties, we expect the downward bias undertone surrounding the share price to prolong over the next couple of months till the audited annual report is completed and published to public, tentative on 31st October 2021 or the conclusive of special independent audit review completed; whichever comes first.

• The on-going saga that resulted in diminishing of investors’ confidence is expected to see both institutional and retail investors continue to keep their hands off for the time being. Hence, we reiterate our stance to advise investors to steer clear of further position, pending for further clarity from the special independent audit review.

• Under the prevailing market events, on-going coverage is now impracticable to comply with applicable regulations and hence, we have decided to suspend our coverage on Serba Dinamik. Given the prolonged uncertainties, we have now lowered our valuations metrics and our fair value is RM0.57 (down from RM1.30).

• We changed our valuation metrics, (from P/E based valuations) by pegging a 40.0% discount to FY21f NTA of RM0.95 to justify for greater accuracy of the company’s valuations at current juncture. The discount is to reflect the potential impairment and/or provisions that may be pencilled into the accounting books, upon the completion of the special independent audit review.

Source: Mplus Research - 25 Jun 2021