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Saturday, February 23, 2008

Gamuda dives 6.7pc, JPMorgan cuts price estimate

GAMUDA Bhd, Malaysia’s second-largest builder, had its biggest two-day drop since September 1998 in Kuala Lumpur trading as JPMorgan Chase & Co cut its price estimate after a stake sale by the managing director.

The stock tumbled 6.7 per cent to RM3.92, extending yesterday’s 16 per cent plunge, cutting RM2.1 billion (US$653 million) off its market value. Managing director Datuk Lin Yun Ling said yesterday he cut his stake to 1.7 per cent from 5.2 per cent.

The sale raised concerns about the company’s management and heightened the risk that Gamuda won’t secure more large contracts after winning Malaysia’s biggest railway project last year, JPMorgan said in a report.

Lin’s also the third founder to have “cashed out” from the construction business within the last 18 months, it said.

Gamuda is a “ship without rudders,” Jon Oh, an analyst at JPMorgan in Kuala Lumpur, said in the report. Gamuda is a “top stock to avoid for 2008.”

The price target was cut to RM3.30 from RM4.40 to “penalise the company for an absence of business direction,” Oh said in the report dated yesterday. “We see plenty of risks in the execution of the construction order book.”

Lin, 52, who trained as a civil engineer and has led the company since 1981, sold the stake for “estate planning purposes,” Selangor, Malaysia-based Gamuda said yesterday in a statement, without identifying the buyer. The stake is valued at RM280 million at current prices.

By Bloomberg

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