Shares of Serba Dinamik (Serba) have been suspended since October 22, of which Bursa Securities cited paragraph 16.02(1)(c) of the Main Market Listing Requirements in the interest of maintaining an orderly and fair market in the trading of the company’s securities. This came as a result of a directive by the regulator to disclose findings of the Special Independent Review pursuant to Paragraph 2.23(1) of the Main Market Listing Requirements, which Serba declined to do, contending that Ernst & Young Consulting Sdn. Bhd. is still in the midst of performing the Special Independent Review. Subsequent to this, Serba has missed coupon payments for its USD300m coupon, though the company has indicated that it will make good the payments within the 1-month grace period under the terms of agreement. Meanwhile, Serba’s Chairman and an independent director have just resigned, citing that Bursa’s most recent stipulations had stopped them from fairly discharging their duties. Bursa had, on November 22, announced that it was seeking a court order to compel Serba to disclose updates on the findings of the special independent review.

Given the heightened uncertainties as a result of these issues – accounting related queries, legal challenges with auditors (both KPMG and EY) and the regulator – we are unable to appropriately assess the prospects of the Group in the near to medium term. With earnings visibility likely to be limited and given the need to re-deploy our resources internally, we are ceasing coverage on Serba.

Our last call is Neutral with a target price of RM0.31 based on a 0.3x multiple to its FY21 book value of RM1.05. Earnings estimates should no longer be relied on as basis of investment decisions.

Source: PublicInvest Research - 25 Nov 2021