CIMB Research maintains underperform on LCL Corp

Written by Joseph Chin
Friday, 11 December 2009 11:23

KUALA LUMPUR: CIMB Equities Research is maintaining its underperform recommendation on LCL Corp Bhd after the latter's unit defaulted in payment of RM72 million to two banks.

"Our target price remains 25 sen as we continue to tag to the stock an unchanged 75% discount to our 1.8 times target price/book value for the CONSTRUCTION [] sector. We reiterate our Underperform recommendation," it said in a research note on Friday, Dec 11.

CIMB Research said the latest news was a major de-rating catalyst, along with worsening newsflow and continuing collection problems in Dubai.

The research house said it expected more loan default announcements by LCL in the coming months unless Dubai's financial position turns around for the better soon.

"We believe this is a less likely scenario. Over the next few months, newsflow for LCL is expected to get worse before it gets better," it said.

The research house said it was unfortunate that LCL had reached this stage. The company offered so much potential two to three years back but its operations and balance sheet were hit hard after working conditions in Dubai deteriorated rapidly in the aftermath of the 4Q08 property crash.

It added the challenges were not just hitting LCL but also hitting hard the main contractors in Dubai, including the Korean and Japanese contractors.