MMC  yesteday  announced  that  legal  proceedings  has  been  initiated against  its  associate  AAS  in  Algeria  in  respect  of  breach  of  foreign exchange regulations concerning a sum of US$26.99m (RM90m). AAS is  involved in sea water desalination in the district of Tlemcen, Algeria. MMC’s effective interest in AAS is 18.2%. (Source: Bursa Malaysia)

Comments: While AAS has been advised by its solicitors that it has a good chance of success in respect of the legal proceedings we estimate the  potential  financial  impact  to  MMC  is  RM16.4m  in  the  worst  case scenario.  This  is  not  material  given  MMC’s  gross  cash  balance  of RM4.31bn as at 2QFY14. We estimate AAS contributes less than 1% of MMC’s net profit. Hence, we maintain BUY on MMC with an unchanged PT of RM3.15.

Source: Affin Hwang Capital Research - 13 Nov 2014