Gamuda; Buy;
Price Target: RM4.75; GAM MK

MMC; Buy
Price Target: RM3.60; MMC MK

In relation to MMC Engineering-Gamuda JV (JV)’s (where both parties have a 50% equity interest each) arbitration against Wayss and Freytag, MMC and Gamuda announced:

(i) the JV’s claim against Wayss & Freytag fails and is dismissed;

(ii) Wayss & Freytag claim succeeds in substantial part and the JV shall pay Wayss & Freytag the sum of RM96.3m together with interest thereon at 5% per annum from 16 April 2013; and

(iii) the JV shall pay Wayss & Freytag the sum of RM9m as costs.

To recap, this is a long standing arbitration dating way back to 2006 where the JV in January 2006 terminated the subcontract works to Wayss & Freytag due to delays in the progress work for the SMART tunnel project. The total payment to be incurred by the JV is RM105.3m. The payments work out to be RM0.04/share for Gamuda and RM0.02/share for MMC, which is immaterial in our view. The amount to be paid is also lower than the initial RM153.8m which Wayss & Freytag was initially claiming for. We maintain our BUY rating on both Gamuda (TP RM4.75) and MMC (TP RM3.60).

Source: HwangDBS Research - 17 Apr 2013