ALL eyes will be on Serba Dinamik Holdings Bhd when the oil & gas (O&G) service provider resumes trading at today’s afternoon session (2.30pm to 5pm) following Tuesday’s (May 25) flagging of some audit matters by its external auditor KPMG (since 2013) in relation to the company’s FY2020 financials.

According to its latest Bursa Malaysia filing, the company has sought an extension to its one-day suspension yesterday which is due for lifting this morning.

Investors will be wondering if this is a case of calm before the storm given the severity of the accusation.

Doubtlessly, this has prompted the analyst fraternity to immediately downgrade their rating of Serba Dinamik stock from “buy” to “hold” or even “sell” (as in the case of AmBank Research) with a much lower target price (as much as 48% in the case of AmBank Research).

“From the understanding of management at this juncture, the review does not appear to involve any elements of fraud, bribery or breach of trust,” commented AmBank Research analyst Alex Goh in a company update yesterday.

“However, the management did not reveal the exact nature nor sums involved in these operational issues raised by its own auditor except to say that updates will be made upon finalisation of the special audit appointment.”

While there could be more clarity when the review is completed together with the issuance on the group’s annual report by end-October, many market analysts expect negative market speculations to percolate and impact the share price over the next five months.

On the hindsight – by allowing common sense to prevail so to speak – one wonders if the market should allow the dust to settle prior to jumping into conclusion that Serba Dinamik is 100% at fault.

After all, in the words of its group managing director and CEO Datuk Dr Mohd Abdul Karim Abdullah, the management has taken prompt action to address the matters even prior to the May 25 Bursa Malaysia announcement.

“As far as we are concerned, we have not changed our business structure materially since our initial public offering (IPO) in 2017 and have worked with KPMG whose auditors are familiar with our operations, since 2013,” justified Abdul Karim.

“We have also engaged potential international independent firms to assess the veracity and accuracy of the matters brought up by the external auditor after consulting with Bursa Securities as time is now of essence given that we need to prepare for the group’s annual report for publication by October 31, 2021, resulted of change of our financial year end to June 30.”

Another note that is worthy of consideration is the very fact that some Serba Dinamik’s shareholders have expressed dissatisfaction with KPMG being the company’s auditor as the audit firm is involved in the 1Malaysia Development Bhd (1MDB) fiasco.

Moreover, as shared by the Minority Shareholder Watchdog Group (MSWG) CEO Devanesan Evanson with the New Straits Times, the mooting of a special independent audit review may assist risk averse minority shareholders to make an informed investment decision.

In a related development, Devanesan also made a valid observation that it is good corporate governance to rotate external auditors every few years as no independent party should remain for long periods of time as their independence would be impacted.

“Over time the external auditor will become more familiar with the management and the board so much so that they are no longer able to exercise independent judgment,” he revealed.

“The very concept of rotation of audit firms acts as a control on the incumbent auditors to act properly as they will know that one day, a new auditor will come in and their acts and omissions will be subject to review by the new auditor.”

In essence, Serba Dinamik is still a fundamentally sound firm with seven years of solid performance to its credit and more so, with the soaring Brent crude price (nearing the US$70 level) providing a boost to its near term business sustainability.

Serba Dinamik was last traded at RM1.61 on May 25 with a market capitalisation of RM6 bil. – May 28, 2021

https://focusmalaysia.my/markets/serba-dinamik-does-the-company-deserve-a-second-chance/