Summary

• Jaks Resources Bhd’s (JAKS) 3QFY21 net profit rose 19.1% YoY to RM31.9m, anchored by the contribution from the Vietnam power plant following the commencement since end-2020. Revenue for the quarter, however, fell 51.6% YoY to RM30.6m in lower contribution from the Vietnam EPCC works.

• For 9MFY21, cumulative net profit jumped 254.3% YoY to RM80.4m. Revenue for the period, however, slipped 58.0% YoY to RM89.6m. The reported earnings came within expectations, making up to 78.5% of our forecasted net profit of RM102.4m and 100.1% of consensus forecasted net profit at RM80.3m.

• Under the prevailing scenario, we foresee the absence of construction contracts for the remainder of FY21f. Moving forward, the outstanding orderbook of RM259.3m will provide earnings visibility over the next couple of years. Meanwhile, JAKS tenderbook remain relatively unchanged at RM4.00bn.

• Elsewhere, the property development segment is expected to continue dragging overall performances, on the back of the lacklustre occupancy rate. With the influx and overcapacity of new retail shops and malls, attempts to improve occupancy rate will be difficult, in our view. Still, a silver lining will be seen from the handover of Pacific Towers business hub by end-2021.

• Over at Vietnam, we reckon that the coal fired thermal power plant will continue to anchor the bottom line over the foreseeable future. Going forward, we see JAKS leaning towards expansion of renewable energy sector, both local and internationally with the LSS4 project slated to commence operations by 1Q23.

• Moving forward, the option raise additional 10.0% stake in the power plant will be put onto the table, given that the aforementioned project has delivered sustainable cash flow over the past quarters. Meanwhile, JAKS remains committed in sourcing for renewable infrastructure projects in both Malaysia and Vietnam to boost their recurring income stream.

Valuation & Recommendation

• Given that the reported results came slightly within expectations, made no changes to our earnings forecast. We maintained our BUY recommendation on JAKS, with an unchanged target price of RM0.75. We view that current price weakness presents a great opportunity for investors to bargain hunt with forward P/E trading only at 7.9x and 7.3x for FY21f and FY22f respectively.

• 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 - 1 Dec 2021