It's been three weeks since Serba Dinamik first announced its intention to appoint an independent film to commence a special independent review on its account on 25th May 2021.
Today, finally it has announced the appointment of Ernest & Young as the independent reviewer, together with 3 new independent and non-executive directors.
In the past 3 weeks, Serbadk share price suffered drastic drop from RM1.61 to a low of RM0.54 before rebounded today to close at RM0.745.
It's a huge 66% drop in just 10 trading days.
SCIB and KPower which are Dato Abdul Karim related stocks are also negatively affected as expected.
SCIB's share price fell 40% from RM1.49 to RM0.88, while KPower dropped 30% from RM1.69 to RM1.18 in 12 trading days.
Are these the lowest share price for those 3 companies before the result of independent review, or will they drop further?
"There will be no wave without wind", it seems like there must be something really wrong in Serbadk for its external auditor to raise its doubts.
After reading the reply by Serbadk's management, I feel like there is nothing too serious but that's just one side of the story as we don't know the real story from KPMG side.
Serbadk should have provided those answers and explanation to KPMG much earlier in May before the issue went public, but why there was no response from KPMG?
Generally the market did not view it positively, despite the fact that the directors of those 3 companies bought millions of shares from open market to give some confidence to investors.
If the company is in deep trouble, why are they still buying its shares from open market?
Moreover, it's millions RM worth of shares!
Let's look at the share transaction by company's directors of Serbadk, SCIB & KPower after 25th May 2021.
SERBADK
25/5: Announced independent review
31/5: Dato Abdul Karim acquired 5 million shares (RM1.13)
2/6: Datuk Abdul Kadier acquired 5 million shares (RM0.884)
3/6: Datuk Abdul Kadier acquired 3 million shares (RM0.8299)
4/6: Datuk Abdul Kadier acquired 3 million shares (RM0.8035)
9/6: Dato Awang Daud disposed 8.5 million shares (RM0.6402)
10/6: Dato Awang Daud disposed 4.3 million shares (RM0.63266)
Datuk Abdul Kadier is a non-independent non-executive director who is also the second largest shareholder of Serbadk at ~19%. He has bought 11 million Serbadk shares in early Jun21.
Dato Awang Daud who is a co-founder & third largest shareholder of Serbadk, has sold a total of 12.8 million shares on 9/6 & 10/6. He said that he sold the shares due to margin call.
Besides, Serbadk's major shareholders KWAP & EPF also sold their shares.
KWAP threw 26 mil shares to cease to be a substantial shareholder while EPF sold about 2 million of shares to date.
For SCIB, it seems like it has the similar issue with Serbadk.
On 24th May which was one day before Serbadk announced its independent review, SCIB announced the change of its financial year from 31 Dec to 30 Jun.
The reasons given are MCO in Malaysia and lockdowns in countries in which the group operate, which hampered the ability to finalize the group's financial statement.
The quarter report ended 31 Mac 2021 is also delayed.
However, Dato Abdul Karim still bought in 1.87 mil shares of SCIB on the day when SCIB announced FY change which was one day before Serbadk announced its independent review, and bought another 2 mil shares on the day when Serbadk announced independent review.
At that time, he should be aware that both companies who share the same external auditor in KPMG were under scrutiny.
So why did he still buy in SCIB's shares, and then bought more when its share price dropped further?
He must be thinking that there's nothing serious and probably didn't expect the share price to react so negatively.
SCIB
24/5: Announced change in FY
Dato Abdul Karim acquired 1.87 million shares (RM1.357)
25/5: Serbadk announced independent review
Dato Abdul Karim acquired 2 million shares (RM1.4465)
27/5: Dato Abdul Karim acquired 1 million shares (RM1.36)
28/5: Datu Haji Mohidin acquired 5,000 shares
2/6: Datu Haji Mohidin acquired 13,000 shares
4/6: Dato Abdul Karim disposed 5 million warrants
9/6: Datu Haji Mohidin acquired 5,000 shares
11/6: Datu Haji Mohidin acquired 5,000 shares
14/6: Datu Haji Mohidin acquired 5,000 shares
Datu Haji Mohidin is an independent non-executive director of SCIB.
The table below shows the contracts bagged by SCIB since Dato Abdul Karim joined the company in mid 2019. Readers can do some research on its clients to see whether they are real.
There are some photos of its projects construction progress in Oman and Qatar in its official website. It's for us to judge whether they are genuine.
Dato Abdul Karim also bought KPower's shares on 27th May before Serbadk resumed trading on 31st May 2021.
However, he sold lots of its warrants after that, probably to prepare cash to buy more Serbadk, SCIB or KPower's mother shares?
KPower
25/5: Serbadk announced independent review
27/5: Dato Abdul Karim acquired 1 million shares (RM1.474)
3/6: Dato Abdul Karim disposed 3 million warrants
4/6: Dato Abdul Karim disposed 3.3 million warrants
En Mustakim (MD) acquired 2.1 million shares (RM1.08)
14/6: Dato Abdul Karim disposed 2.9 million warrants
The move of KPower's managing director acquiring 2.1 million shares should be very positive to shareholders of the company.
KPower does not get any contract from Serbadk and the Middle East. All of its contracts are hydroelectric projects from Malaysia, Indonesia, Laos and Nepal.
Its FY21Q1 quarter result was already released without much issue, even though its external auditor is not KPMG.
For those who believe in the company especially in Dato Abdul Karim, they will think that it's a great opportunity to buy the shares at massively discount price.
For those who are pessimistic, they will have lots of reasons to "prove" that there is serious fraud involved and it's a trap.
For me, I am forced to make a decision since I still own shares of SCIB. Frankly speaking at the moment, I also don't know whether should I sell all or should I hold.
Nevertheless, the actions of the directors have surely given some reassurance to their shareholders including myself.
Now I just hope that SCIB can release its quarter report ASAP within Jun21.
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ReplyDeleteWhen I think deep into the whole Serbadk and KPMG issue, the more I feel there are many "mysteries" which lay people like us cannot find out. The actual issue may be more than relating to merely Serbadk and KPMG. The audit issues raised may just be matters on the surface.
ReplyDeleteFirstly, there are a number of "low-level" doubts that KPMG brought out, for example, the doubt about why RM100k paid-up capital can have sales transaction between RM60mil and RM96mil, and the doubt about why one customer's principle activity is not IT-related but can have IT contract and so forth. The reason i think these "doubts" are "low-level" is we, even not the experienced accountant/auditor, would know this sort of matters is not uncommon to happen. So, why KPMG auditor could raise this sort of doubts ? I don't think the KPMG experienced auditor would not know how the actual business operating environment is compared to layman like us.
Secondly, Serbadk had replied to KPMG on 6th May. What KPMG should at least do was to VERIFY the replies given by Serbadk, and let people know their verification results and the reasons why if they still do not satisfy with the replies. Instead, KPMG chose to do nothing and remained silent for ~20 days. This is not what a Big4 audit firm does, and it is very mysterious why KPMG chose to do so especially for serious matter like this.
ReplyDeleteIn short, some of the "low-level" doubts that triggered this audit issue, and KPMG chose not to verify the replies given and remained silent for ~20 days before letting this serious matter exploded are "mysterious" to me. The unexplainable behavior shown by KPMG has led me to think that the matter is not as simple as what we can just see on the surface..
ReplyDeleteI am not concluding Serbadk is innocent in this audit matter, Serbadk's increasing receivables and debt as well as frequent PP exercises are indeed worrying to me.
There are some conspiracy theories which involve Petronas and Malaysian government to this Serbadk-KPMG audit issue right now..i can't know how true they are but i do think this matter is not as simple as merely audit-related issue. Something bigger and wider may be hidden behind.
Well, maybe i think too much. But, it is really interesting to see how the outcome is going to be. We may or may not even know what actually happens behind the scene when this audit issue ends.
ReplyDeleteThanks for giving your opinion on this matter. It's good if KPMG can come out to tell its part of the story, especially on why it was not satisfied with Serbadk's answers to those doubts. Now Serbadk is going to sue KPMG, and I hope that KPMG will react to it. Anyway Datuk Karim really denies kao kao of any wrongdoings, it's interesting to see how it will end eventually.
ReplyDeleteThe legal suit against KPMG turned out to be negative as shown by its stock price last Friday. The resignation of 5 audit committee members is likely to trigger another sell-down this coming Monday. In short, Serbadk made a bad move to sue KPMG. They did so may just to force KPMG to resign since they couldn't remove KPMG weeks ago.
DeleteThe question is why Serbadk insists to remove KPMG? Are they really have accounting fraud that they know cannot get through KPMG? My trust on Serbadk has much reduced now after seeing their move to get rid of KPMG...
In order to find out if there is any fraud, i use the following checklist as per what I have learned :
ReplyDeletei) Check net profit margin - if the sales revenue increases, the net profit margin should either maintain or improve due to economies of scales.
Examine Serbadk - Its PBT margin has been quite consistent between 10% to 13% (except the last quarter, i.e. Jan-Mar'21)
ii) Check Operating Cash Flow - if the operating cash flow is often negative, this may mean the receivables is getting higher and company not get paid for the products sold. This may also mean the sales revenue is inflated.
Examine Serbadk - Its operating cash flow in FY18 to FY20 were +RM83.2mil, +RM213mil, and +RM45.7mil respectively.
iii) Check dividend - if the company is in financial difficulty, it won't give out dividend.
Examine Serbadk - It has dividend policy of ~30% from PAT. From FY17 to FY20, it has been giving out dividend consistently.
iv) Check liability and fund raising corporate exercise - if a company in financial difficulty, it would often borrow money from banks, and raise fund through private placement or right issue.
Examine Serbadk - It indeed has high and increasing debt ratio, and performs private placement often.
Findings : Serbadk passed three and failed one examination crietria for a fraudulent company.
The checklist for fraudulent company says Serbadk is not likely one..
ReplyDeleteFrankly, if i know thing can become this bad, i won't invest into KPower (or buy it later when price is lower). It is too late to regret, i should think about should I sell KPower at current price? If Serbadk's price goes down more, it will surely drag down KPower and SCIB, so will Serbadk go down further from current 41sen per share?
In order to answer my own doubt. I should ask if Serbadk worth 41sen per share even if the accounting fraud turns out to be true? Is the potential black hole of Serbadk is so big that it would turn out to have negative assets and finally delist from Bursa?
ReplyDeleteMy opinion is i don't think so. I believe Serbadk is still have value >41sen per share even if there are some discrepancies in its sales transaction, receivables and onsite materials. There could be some provisions and impairments if fraud is confirmed, but not causing it to turn to a negative-asset company.
The above is of course not taking into consideration the reputation lost which could has very adverse impact on its stock price.
Therefore, i think it is not a very good idea to sell at current price level. Hold may be a better option. I hope i am not wrong :p
Another potential outcome is Serbadk looks for other external auditor (may not be the big 4) to audit and sign-off its account by end Oct'21. The audit matter closes at least until next financial year, and Serbadk announces business-as-usual.
ReplyDelete1MDB did so by changing E&Y to KPMG (when EY refused to sign-off) and then to Deloitte (when KPMG refused to sign-off).
If this potential outcome realizes, market surely has reduced confidence in Serbadk but at least the matter is kind of "resolved".. How will its stock price performs then? How will KPower and SCIB stock price perform then?
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ReplyDeleteAgain thank you for sharing your views here. Today Serbadk closed at 32.5sen, which is a bit shocking. It seems like its share price has not stabilized at certain level yet since there are so many bad news. Anyway it should move sideways at a price level until Sep/Oct, not dropping everyday.
ReplyDeleteActually I'm thinking of buying KPower, it really has nothing much to do with Serbadk. The main man in KPower is En Mustakim who is from OHP Capital which is involved in hydro projects before joining KPower. When LSS4 EPCC awards start, it should get some external contracts, apart from contract from its own LSS4 project.
As for SCIB, its QR just out today. However, I think there is still risk in SCIB since its external auditor is also KPMG, who might want to "retaliate". Anytime there might be an announcement of an independent review requirement just like Serbadk... I'm still a shareholder of SCIB anyway.