Kenanga Research ceases coverage on Serba Dinamik

KUCHING: The research arm of Kenanga Investment Bank Bhd (Kenanga Resesarch) has ceased coverage on Serba Dinamik Holdings Bhd (Serba Dinamik), given the counter’s uncertain outlook.

This comes as Serba Dinamik’s first quarter of financial year 2022 (1QFY22) core net loss of RM42 million completely missed expectations against Kenanga Research’s full-year profit forecast of RM474 million and consensus of RM359 million.

Analysts said this was likely due to slow job flows and margins deterioration in both its core segments of operation and maintenance (O&M), and engineering, procurement construction and commissioning (EPCC).

“Quarter on quarter (qo-q), 1QFY22 plunged into losses, from a profit of RM15 million, mostly dragged by poorer job flows and margins deterioration, especially for its O&M segment,” the research arm said in its notes yesterday.

“Similarly, on a year on year (y-o-y) basis, 1QFY22 plunged into losses from a profit of RM148 million, due to poorer job flows and margins deterioration in O&M and EPCC.”

In line with the industry moving forward in response to the adoption of the Fourth Industrial Revolution (IR 4.0), Serba Dinamik is striving to generate sustainable value and construct entire sustainability while integrating ICT and aerospace business as part of its core business.

“Despite the positive fundamentals, the group’s business environment remains challenging, owing to the crisis that the group is currently experiencing as a result of the incomplete statutory audit,” it continued.

“The board of directors is striving to resolve these issues in the best interests of all stakeholders.”

With the company currently in litigation against its former auditors KPMG, its appointed special independent review Ernst & Young, as well as Bursa Malaysia, Kenanga Research believed questions revolving around the group’s corporate governance could still persist.

The research arm also believed conclusive outcomes from its special independent review report and its audited annual report are the most resolute way of putting these uncertainties to rest.

“However, last week, the group had also announced that it is unable to finalise its audited financial statements in a timely manner before the due date of November 30, 2021, with Bursa also rejecting its second extension of time application.

“Additionally, any failures to meet debt repayment obligations, especially its coupon payments for its US$300 million sukuk, reportedly due May next year, will put the group’s balance sheet into further risk.”

Given the counter’s uncertain outlook, and coupled with the stock being under suspension since October 22, 2021, Kenanga Research is ceasing its coverage on the stock for the time being.

“Should outlook turn more positive, we are open to revisiting our call on the stock.”