Identifying Potential 'Atomic Bombs': Occurrences That Causes Collapse 💣💥

Financial reports released quarterly and annually serve as vital tools for understanding a company's performance. However, recent events, such as $SERBADK / 5279 (SERBA DINAMIK HOLDINGS BERHAD)'s accounting fraud and panic selling earlier in 2024, have prompted us to exercise greater caution when investing. It's important to remain vigilant of certain indicators that may signal potential issues within a company's financial reporting. It's worth noting that this does not automatically imply deceit in the company's financial reports. Rather, this post aims to encourage investors to be more mindful of these occurrences for their own benefit.

Here are some key points to consider:

1. Change in Financial Year End:
$YNHPROP / 3158 (YNH PROPERTY BERHAD) shifted its financial year end from December 31, 2022, to June 30, 2023. In my view, such changes are often a response to potential concerns raised by external auditors and can be seen as a method to "buy time."

2. Auditor's Qualified Opinion:
On October 23, $YNHPROP / 3158 (YNH PROPERTY BERHAD)'s external auditor, Baker Tilly, issued a qualified opinion regarding the group's financial statements for the 18-month period ending June 30, 2023. This opinion was related to joint ventures and turnkey contracts for property development. Baker Tilly cited a "basis for qualified opinion," noting an inclusion of RM1.1 billion in YNH's inventories related to contracts with JV parties or landowners.

In response, YNHPROP has engaged external firms to conduct a special review and provide legal opinions on the Joint Venture Agreements and contracts. This review is expected to conclude by April 2024.

3. Resignation of Independent Non-Executive Directors:
Additionally, in October 2023, $YNHPROP / 3158 (YNH PROPERTY BERHAD) witnessed the resignation of two independent non-executive directors, Ching Nye Mi and Ding Ming Hea. YNHPROP stated in response that "The announcements on the Change in Boardroom have clearly stated that both independent non-executive directors have served the Board for more than 12 years and their resignation was in line with the mandatory 12 years tenure limit for Independent Director under the Main Market Listing Requirements of Bursa Malaysia Securities Berhad, which came into effect on 1 June 2023."

In conclusion, it is not suggested that $YNHPROP / 3158 (YNH PROPERTY BERHAD) is engaging in accounting fraud. Rather, these events serve as early indicators for investors to make informed decisions and potentially avoid losses, particularly as these events transpired before 2024.