Summary

• Jaks Resources Bhd’s (JAKS) 2QFY21 net profit sky-rocketed 1230.5% YoY to RM28.8m, lifted by the contribution from the Vietnam power plant following the commencement since end-2020. Revenue for the quarter, however, fell 44.5% YoY to RM41.6m.

• For 6MFY21, cumulative net profit stood at RM48.6m vs. a net loss of RM4.1m recorded in the previous corresponding quarter. Revenue for the period, however, slipped 60.7% YoY to RM59.0m. The reported earnings came slightly above expectations, making up to 54.6% of our forecasted net profit of RM89.0m and 45.4% of consensus forecasted net profit at RM107.0m.

• On the local front, we foresee the absence of new contracts to prolong amid the uneven recovery in the construction sector. Still, the outstanding orderbook of RM282.1m will provide earnings visibility over the next few years. Further clarity is expected to be seen in the upcoming Budget 2022 announcement. In the meantime, JAKS tenderbook stood at RM4.00bn.

• Meanwhile, the property development segment is expected to continue to bleed, owing to the lacklustre occupancy rate. We reckon that attempts to increase the occupancy rate will remain a large hurdle at current time.

• On a brighter note, we reckon that the coal fired thermal power plant will continue to anchor the bottom line in 2H21. Although Vietnam has entered into an extended lockdown since July 2021, we reckon that utilisation rate to remain afloat (above 70% level), supported by sustainable demand. Going forward, we see JAKS leaning towards expansion of renewable energy sector, both local and internationally.

• Under the prevailing situation, we believe that JAKS management will be deliberating the option raise additional 10.0% stake in the power plant once operational cash flow from the aforementioned venture yields further results. Meanwhile, JAKS is also actively exploring for renewable infrastructure projects in Vietnam to boost their recurring income stream.

Valuation & Recommendation

• Given that the reported results came slightly above expectations, we tweaked our earnings forecast higher by 15.1% and 4.3% to RM102.4m and RM110.5m for FY21f and FY22f respectively, adjusting to the higher contribution from Vietnam operations and lower effective tax rate. We maintained our BUY recommendation on JAKS, with a higher target price of RM0.75 (from RM0.72).

• Our target price is derived by sum-of-parts (SOP) approach as we ascribed a target PER of 9.0x to both its construction and property development segments, based on their potential earnings contribution in FY22f. Meanwhile, we valued both its concession businesses (thermal power plant and LSS4) on a discounted cash flow approach.

• Risks to our recommendation and target price include lower-than-expected utilisation rate or unexpected increase in overhead cost in Vietnam IPP project. Failure to meet our construction orderbook replenishment assumption of RM100.0m per annum. The Vietnam operations are denominated in USD whereby a firmer USD/MYR movement will be favourable and vice versa.

Source: Mplus Research - 8 Sept 2021