Summary

• Jaks Resources Bhd’s (JAKS) long-term prospects remain challenging, uncertain owing to the depleting construction orderbook at RM139.1m after completing the recognition of balance EPCC works at Vietnam. Still, we reckon that earnings stability will be ensured by the long term contribution from the 30.0%-owned joint venture in coal-fired Hai Doung Power Plant.

• We reckon that the construction segment may continue to see lackluster performance, owing to the absence of relatively large scale replenishment construction projects in the recent years. While the construction sector revival is very much anticipated post state elections and the tabling of Budget 2024 in Malaysia, the elevated building material prices and higher labour cost may keep margins in check.

• Also, the property investment segment may remain soft over the foreseeable future, owing to the low occupancy rate in both Pacific Business Hub and Evolve Concept Mall. The mushrooming of neighbourhood and larger scale retail malls have resulted in oversupply of retail spaces. Moving forward, 3.4m sqf of net lettable area (NLA) from 8 malls (The Exchange TRX, KSL Esplanade Mall, Senada Shopping Centre, MET Galleria, Pavillion Damansara Heights Mall Phase 1, Bloomsvale Mall, 8 Conlay and Sunsuria Forum @ 7th Vaenue) is expected to come onto stream in Klang Valley in coming 3 years.

• Despite that, we are sanguine on the group’s efforts to shift their focus onto the power energy segment. We believe that the commercial operation for Large Scale Solar 4 project (LSS4) is expected to commence early July 2023 will strengthen the contribution in power energy segment. The move is expected to potentially generate RM10.0m in per annum in bottom line over the 25-year concession period.

• We also note that JAKS is undertaking a private placement exercise and proceeds will be utilised to repay existing debts and fund working capital. While the move is essential, given that the group is operating in a negative net cash flow position over the past 8 quarters, further dilution in holdings of existing shareholders is not favourable.

• Therefore, we are ceasing coverage on JAKS due to reallocation of internal resources and the lack of retail and institutional interest. We reckon that the trading activities may remain muted over the foreseeable future amid the absence of fresh leads.

• Our last recommendation on JAKS was BUY with a fair value at RM0.27. The fair value was derived by sum-of-parts (SOP) approach as we ascribed a target PER of 7.0x to both its construction and property investment segments as we expect the pace of recovery to be measured. Meanwhile, we valued both its concession businesses (coal fired thermal power plant and LSS4) on a discounted cash flow approach.

Source: Mplus Research - 21 Jun 2023