Kerjaya Prospek Group’s (KPGB) unit has filed a lawsuit against Apple 99 Development SB for allegedly failing to pay an outstanding residual contract sum of RM105.1m. We believe the Group has a strong legal basis and merits in its claim. Pending the outcome of the litigation process, this is not expected to have any material impact on the group in the current financial year. However, in the immediate term, the news flow may trigger a knee-jerk reaction in its share price. Pending the outcome of the litigation process, we maintain our Neutral call with an unchanged SOTP-based TP of RM1.96.

• Lawsuit. KPGB’s wholly-owned subsidiary Kerjaya Prospek (M) SB (KP) has initiated legal action against Apple 99, a wholly-owned subsidiary of Yong Tai by filing a writ of summons and a statement of claim. The claim arises from Apple 99's failure to pay an outstanding residual contract sum of RM105.1m. KP is also seeking a declaration that Apple 99 is in breach of a settlement agreement (SA) dated Feb 25, 2020, as well as an order for specific performance of the SA and the hotel sales and purchase agreement (SPA). KP contends that Apple 99’s failure to pay the contract sum and the absence of a sale of the hotel to a third party by the agreed deadline, KP is now entitled under the SA to proceed with the hotel SPA. Pending the outcome of the litigation process, the lawsuit is not expected to have any immediate material financial impact on the group.

• Recap. In 2016, KPGB had bagged a contract worth RM213.7m from Yong Tai for the construction of main building works of a proposed mixed development project known as "The Apple". The project is a joint venture between Yong Tai and PTS Properties SB in Melaka. It comprises a 16 storey hotel building with 284 rooms, known as Courtyard by Marriott, a 32-storey service suite building with 361 units of serviced apartments, and an eight-storey podium of car park.

Source: PublicInvest Research - 23 Aug 2024