Ch Karnchang yesterday remained a favourite with stock analysts, although investors were spooked by the Supreme Court's ruling that the Expressway and Rapid Transit Authority of Thailand (ETA) does not need to pay Bt6.2 billion in compensation as sought by the company and its construction consortium.

The stock initially surged 4.46 per cent to the day's peak at Bt9.35 on anticipation that the Supreme Court would uphold the compensation settlement. However, as of 10.59am - after the adverse ruling was read - the share price fell to Bt8.70, down Bt0.25 or 2.79 per cent from Wednesday's close.

The company's stock ended the day at Bt8.40, down Bt0.55 or 6.15 per cent. A total of 96.66 million shares were traded with a combined value of Bt849 million.

The Supreme Court yesterday came up with a ruling that contradicted that of the arbitration panel in 2001 and the Civil Court in 2003.

While the panel and the Civil Court had said ETA should pay the compensation, the Supreme Court ruled that then-ETA governor Siwa Charoenphan had unlawfully signed a contract with BBCD to build the expressway.

ETA is not, therefore bound to pay any compensation under the contract, it said.

As a result of yesterday's ruling, the state agency needs not to pay any compensation or interest to Joint Venture BBCD, which in 1995 was awarded the Bt25-billion contract to build the Bang Na-Bang Phli-Bang Pakong expressway.

According to Ch Karnchang's 2003 annual report, the company holds 35 per cent of BBCD, which also includes Bilfinger+Berger and Dyckerhoff & Widmann as partners. Together, they said the expressway construction's costs had increased by Bt6.5 billion due to changes in the scope of design work and other changes ordered by the concession owner, the ETA.

In 2001, the arbitration panel appointed by the Cabinet ruled in favour of the petition. BBCD filed a petition to the Southern Bangkok Civil Court in 2002. A year later, the Civil Court stood by the arbitration panel's ruling. The ETA appealed the case to the Supreme Court in 2004.

Anukool Tuntimas, executive vice president of Ch Karnchang for Human Resource and General Administration, said the company was reviewing the possible impact on the company's operations from the court's ruling. He also insisted that Ch Karnchang would find new ways to seek compensation.

"The management is currently reviewing the details of the said judgement by the Supreme Court and is of the initial view that the Supreme Court's judgement refusing to enforce the arbitration award, reasoning that the Contract for the Design and Construction in question between the ETA and Joint Venture BBCD has no binding effect, in no way prejudices Joint Venture BBCD's legal right of claims for the increased costs," he said in a statement to the Stock Exchange of Thailand.

A source at Ch Karnchang, who declined to be named, told Krungthep Turakij that he was confident the company would win when bidding for new subway-line construction.

He also said that despite the reverse, Ch Karnchang would pay a dividend for 2006 operations, but it is still uncertain whether the dividend would exceed the Bt0.35 per share paid out for 2005.

Seamico Securities' research pointed out that the ruling would immediately send Ch Karnchang's first-quarter results from a net profit into a net loss, as the company has to slash its trade receivables by Bt2.51 billion. Its shareholders' equity would then fall by Bt2.51 billion, or 32 per cent, from the end-2006 level.

"However, the impact would be minimal as the expenses have been already booked in their financial statements on an equity basis. Though interest expenses could be higher, that should be small and should not affect cash flow," the securities house said.

Seamico still favours Ch Karnchang, citing that it is the Thai contractor with the highest profitability. At the end of 2006, its backlog was worth Bt25 billion and it is going to sign up for construction work valued at Bt3.2 billion, sufficient for its operations for one and a half years. It could also stand a chance to win the bid to construct the new subway routes, having worked on the capital's first subway line.

An analyst from DBS Vickers Securities also recommended buying at Bt13.20 per share.

Ayudhya Securities said in a note that it had maintained its "buy" recommendation on Ch Karnchang's stock despite the court's verdict.

The Supreme Court's ruling might shave Bt1.38 per share off Ch Karnchang's book value due to a write-off in accounting, but its operational capability and cash flow remain unchanged, the broker said.

 Meanwhile, Siam City Securities said that the ruling would have a short-lived effect on Ch Karnchang as the company's fundamentals remain solid.

The company is a large construction firm with focus on high-margin work, and this would make its operating results outstanding, the broker said.

In addition, the company has an upside gain from the listing of its subsidiary, Thai Tap Water Tap Water Supply, on the stock market this quarter and the possibility that the company will win the bidding to build the subway extension.

The company's net profit in the first nine months of its financial year jumped to Bt1.16 billion, from Bt505.89 million in the same period a year earlier.