KUALA LUMPUR: CIMB Equities Research is retaining its Hold call for WCT and target price of RM2 on fresh news that China-based Triumpher Steel Construction Group Ltd has initiated arbitration proceedings against WCT-Arabtec JV (50:50).
Triumpher Steel is claiming RM131mil for subcontract works related to the Nad Al-Sheba Dubai Racecourse project (Meydan Racecourse).
The research house pointed out on Monday that Triumpher Steel was one of the subcontractors for steel-related works. Its contract was terminated in 2009, following cancellation of the Meydan contract. The arbitration will be conducted via the Dubai International Arbitration Centre (DIAC).
Recall that in September 2007, WCT-Arabtec JV was awarded the contract to build the Nad Al Sheba Racecourse in Dubai. The client was Meydan Group LLC. Total project value was about 4.6bil Emirati dirhams or RM5.6bil.
Unfortunately, about a year into the construction, the overall contract for the main building, external works and infrastructure was cancelled.
Triumphant Steel’s claims against WCT-Arabtec JV is related to work done but not paid for.
As the main contractor, WCT-Arabtec JV has its own ongoing arbitration case against Meydan LLC. The good news in July 2015 was that the DIAC had ruled in favour of the JV and ordered Meydan LLC to pay RM1bil.
“The award has not been realised as it is pending enforcement by the international courts. Typical of any historical international case, this process is likely to take a longer time.
“This news of the RM131mil claim is a negative surprise, even though it could be partially offset by the c.RM1bil incoming arbitration settlement.
“WCT’s 50% share of the claim, assuming the DIAC rules in favour of the subcontractor, could slash our FY17F net profit forecasts by 45%. RNAV impact is smaller, at less than 2%. That said, we suspect that this process will be long drawn and the resulting impact may not materialise within our forecast period.
“We retain our EPS forecasts and target price, still pegged to a 30% RNAV discount. This news could result in slight share price overhang pending the arbitration process.
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