News     Gamuda has released an amended announcement to clarify that the total cost of the arbitration loss on the Wayss & Freytag case to its joint venture entity, MMCEG-Gamuda would be at RM183.8m.

Comments     This would be negative for MMCCORP as we had only factored in a minimal loss of RM27.5m for MMCCORP.

Given the clarification above, the total arbitration cost computation for MMCEG-Gamuda should now be at RM183.8m instead of the previously announced RM105.3m.

This will be shared evenly among the two parties and hence would translate into a total cost of RM91.9m for MMCCORP instead of our earlier assumed cost of RM27.5m, lowering further our FY13 earnings estimate for the company (although we reckon that this should be a one-off event cost).

Outlook      Going forward, we reiterate our view that a similar case is less likely to occur in the current MMC-Gamuda KVMRT JV as the current Project Delivery Partner (“PDP”) setup has a better control over the sub-contractors through a KPI monitoring process, i.e. progress milestone. This time around, MMC-Gamuda is also taking direct charge of the tunneling portion for MRT, which provides it with greater control on a high-risk portion of the project, which tends to be prone to delays.

We continue to believe that MMCCORP will be one of the stocks to be in focus post-election as it could be looking to sell its 200 acres land in Tanjung Bin to an independent terminal operator and also see possible asset replacements for GASMSIA and MALAKOFF after their listings.

Forecast     We reduce our FY13 estimate by another 12% to RM355.5m as we have further factored in the total amount of RM91.9m on the additional one-off litigation cost arising from the arbitration.

Rating     Maintain MARKET PERFORM

We are maintaining our MARKET PERFORM rating on MMCCORP due to the General Election risks/uncertainties.

Valuation     There is no change to our TP of RM2.80 as it is based on a SOP valuation.

Risks     Delays in the MRT progress.

Source: Kenanga