Gamuda, WCT remain outperformers

KUALA LUMPUR: Gamuda Bhd and WCT Bhd remain top picks of the construction sector despite news of negative development on their joint-venture company in Qatar, a research house said.

In a note on March 10, CIMB Research said it maintained its outperform calls on WCT and Gamuda, with contract awards or positive developments, both local and overseas, being their potential re-rating catalyst.

The two companies had said on March 9 that their JV company, Gamuda-WCT JV, had been served with a request for arbitration pertaining to the subcontracted pavement works for the completed Dukhan Highway in Qatar.

Bahrain Asphalt Establishment BSC was claiming a total sum of RM101.1 million from the JV company, they told Bursa Malaysia.

Gamuda-WCT JV was awarded the Dukhan highway project in July 2005. It completed the project in July 2009.Commenting on the claim, CIMB Research said in the worst case, WCT would be liable for RM49.5 million based on its 49% share of the JV while Gamuda would be liable for the RM51.6 million balance.

"While this is a negative surprise, investors should not be unduly concerned at this juncture as it will take time for the claims to be enforceable and there is an equal chance of an amicable back-to-back settlement as the JV is claiming VOs (variation orders) from its client (Qatar's Public Works Authority).

"Working on pro-rated basis by taking into account Dukhan Highway's original cost of RM788 million, and the extension of project completion from 28 months to 48 months, we estimate that the JV's total claims could be as much as RM560 million," it said as it maintained its earnings forecasts and outperform calls for WCT and Gamuda.

"There is no change to our target prices for WCT (RM3.60 based on 20% revised net asset value discount) and Gamuda (RM4.24 based on 10% discount to revised net asset value)."

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