KUALA LUMPUR: The legal claim on a sub-subsidiary of Malakoff Corp Bhd could offer downside risk to the group's headline profit, says PublicInvest research.
The group recently announced that Tiemcen Desalination Investment Company SAS (TDIC), wich is 70% owned by Malakoff subsidiary Malakoff AlDjzair Desal Sdn Bhd (MADSB), has been hit with a legal cliam for EUR80mil (RM370mil) by its joint venture partner Algerian Energy COmpany SPA (AEC).
AEC and RDIC are 51:49 partners in a joint venture company Almiyah Attilemcania SPA (AAS), which operates a sea water desalination plant in Algeria.
Malakoff ultimately owns a 35.7% stake in AAS.
AEC alleged breaches and negligence in the design, operation and maintenance in the Algerian plant and wrongly objected to the termination of the Water Purchase Agreement, transfer of shares to AEC and carrying out of a technical audit.
"The carrying amount of investment in AAS had been fully provided for in year 2016.
"Nevertheless, we would like to highlight that there is earnings risk from this material litigation, should Malakoff fails to defend itself," said PublicInvest.
The research house added that it is not able to determine the financial impact as the claims are still being reviewed by Malakoff's lawyers.
Despite the potential downside risk to headline net profit, its core net profit estimate remains unchanged.
PublicInvest maintained its trading buy call with a target price of RM1.02.
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