Continued earnings growth fails to support Serba Dinamik share price, why?

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KUALA LUMPUR (June 28): Serba Dinamik Holdings Bhd, which has been in the limelight due to audit problems that resulted in the resignation of its external auditor KPMG as well as four independent directors, continued to record earnings growth in the last quarter ended March 31. 2021.

Nonetheless, that did not support its stock price, which plunged to a new all-time low of 32 sen this morning from RM 1.61 before the audit fiasco.

The latest quarterly net profit of RM 113.32 million pushed the annual net profit of the oil and gas service company (O&G) to RM 745.06 million for the fiscal year ended March 31, 2021 to a new record. Quarterly turnover was RM 1.38 billion, bringing the total to RM 7.4 billion.

The financial year includes five financial quarters as it changed the year-end date to June 30, 2021 from December 31, 2020.

The company’s profits are on a steady growth path despite the difficult operating conditions of recent years due to the crude oil collapse and the Covid-19 pandemic. Many of its industry peers have suffered badly, including Petroliam Nasional Bhd (Petronas) which recorded its first-ever annual losses in these difficult times.

On closer inspection, Serba Dinamik’s receivables and inventories have also piled up, which the group previously attributed to the Covid-19 pandemic and in anticipation of projects in its pipeline.

Around 85% of Serba Dinamik’s revenue and gross margin comes from the Operation and Maintenance (O&M) segment, mainly from the Middle East region such as Qatar, United Arab Emirates (UAE) and Oman, followed by Malaysia. Other segments include engineering, procurement, construction and commissioning (EPCC), information and communications technology (ICT), and education and training.

It was noted that on a quarterly basis (qoq), Serba Dinamik’s results were 43.94% lower compared to RM202.15 million for the quarter ended December 31, 2020, contributions from all segments having fallen.

Quarterly revenue fell 23.8% from RM 1.82 billion, which the company said was “mainly due to the slowdown in activity in Malaysia given the recent movement control order ( MCO) imposed in several states of the country “.

Cash flow and receivables paint a different picture

Serba Dinamik was embroiled in audit issues with his external auditor KPMG after the latter briefed the board at the end of May on certain matters relating to certain invoices and transactions amounting to RM 4.54 billion.

Serba Dinamik management claimed that KPMG had exaggerated “trivial audit problems”. As a result, she filed a lawsuit against KPMG. Four independent directors subsequently resigned last Friday to protest the company’s decision to sue the auditor.

Back on Serba Dinamik’s financial accounts, however, his cash flow statement and balance sheet situation told a different story.

By the end of March 2021, Serba Dinamik’s cash balances had fallen to Ringgit 1.03 billion, compared to Ringgit 1.31 billion at the end of 2019.

Despite over RM100 million in profits and over RM1 billion in revenue, Serba Dinamik’s net operating cash flow further deteriorated in the quarter to reach RM9.75 million at the end of March, against 45.74 million RM three months previously.

The measure turned negative at RM 320.59 million for the 15-month period ended March 31, 2021 including financing activities, interest paid and net repayment of lease debts.

Meanwhile, stocks swelled to RM964 million or more than 100% during the period, bringing the total to RM1.88 billion. It increased by an additional RM 217 million in the last quarter.

Trade and receivables increased by 665 million ringgit or 53% since the end of 2019 to reach 1.92 billion ringgit at the end of March. However, the amount increased at a much slower rate of RM 56.3 million during the quarter under review.

In particular, with the increase in turnover, the group’s debtor days have been reduced to 95 days against 113 days at the end of 2020.

Serba Dinamik Group CEO and largest shareholder, Datuk, Dr Mohd Abdul Karim Abdullah, stressed that Covid-19 posed a real challenge in securing prompt payments, although there was no indication of bad debts. The company operates in more than 20 countries, he added.

In addition, trade payables and debts also increased by 196.45 million RM in the same 15 month period to a total of 656.85 million RM. It increased by 125.7 million RM in the last quarter.

The group also paid 172.9 million RM in dividends for the 15 month period.

Despite the steady growth in revenues and profits, the group financed its cash flow needs through other means.

Since the start of 2020, Serba Dinamik has raised RM 965.31 million through two private placements, where RM 300 million has been allocated to repay loans, RM 100 million for Teluk Ramunia (capex) capital expenditure, 303 million RM for its projects in Abu Dhabi and some 234 RM. million for working capital.

In July 2020, Serba Dinamik also raised RM 177 million by selling its 24.8% stake in Singapore-listed CSE Global Ltd to the Heliconia Capital Management unit of Temasek Holdings, the proceeds of which were also intended for working capital purposes.

In addition, the group borrowed more from banks. Its total borrowing increased by 635.9 million ringgit to 3.98 billion ringgit at the end of March, from 3.34 billion ringgit.

Serba Dinamik also increased its annual results by 30.24% and 27.04% respectively between the fiscal year ended December 31, 2017 (fiscal year 17) and the 12-month period ended December 31, 2020.

The increase in the group’s debt, receivables and payables as well as inventories has been accompanied by a rapid expansion of the company over the years, especially in the Middle East where more than 60% of the its turnover.

This was also partly where Serba Dinamik’s former external auditor, KPMG, was unable to verify certain customers and suppliers, as well as sales transactions, trade receivables and physical balances on site.

Serba Dinamik in his latest earnings report said: “Without prejudice to the ongoing civil lawsuit with KPMG and the allegations contained therein, to address market and regulator concerns, the special independent review will proceed as scheduled. . “

Read also:
Serba Dinamik Reports Net Profit of RM 113.32 Million for 5QFY21, Supported by O&M Operations

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