Summary

• Jaks Resources Bhd’s (JAKS) has entered into a memorandum of understanding (MoU) with T&T Group Joint Stock Company (T&T Group) to explore the possibilities for cooperation with respect to potential liquefied natural gas (LNG) to power projects. The MoU is valid for one year from the date of execution.

• T&T Group was incorporated in 1993 and is leading Vietnamese cross-industry company with 80,000 employees. In bid to generate a sustainable development, T&T Group has been researching and preparing for the development of renewable energy over the past 10 years. At present, T&T Group has invested and developed renewable power plants, solar power plants, LNG power plants, waste-to-energy power plants and waste treatment plant.

• Recognising the potential and increasing demand for energy sources meet economic growth, both parties wish to explore the possibilities for cooperation in the development of Quang Ninh 2 (1,500-MW) LNG-to-power project in Quang Ninh province, Vietnam.

• We deem the move to be positive for JAKS, which is in line with the group’s aspiration to expand their presence in the renewable energy sector to generate long term sustainable income. We believe that, JAKS will be able to leverage on its past expertise through the successful development and commencement of 1,200MW coal-fired thermal power plant in Vietnam.

• Moving forward, T&T Group on track to commission 800.0-MW of solar PV and onshore win projects by end-2021. We gather that T&T Group is has recently launch a strategic collaboration with Ørsted, the largest energy company in Denmark for the development of offshore wind in Vietnam. This strategic partnership is expected to generate an estimated total installed capacity of nearly 10.0-GW and total investment value of about USD30.0bn (to be phased in investment over 20 years).

Valuation & Recommendation

• We made no changes to our earnings forecast, given that the MoU has no financial impact to JAKS operations for the time being. Therefore, we maintained our BUY recommendation on JAKS, with an unchanged target price of RM0.75.
• 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 its concession business segment on a discounted cash flow approach (key assumptions include an IRR of 11.5%, WACC of 7.0% and terminal growth rate of 2.5%) in view of the long-term sustainable projected income.
• 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 - 14 Sept 2021