Summary

• Jaks Resources Bhd’s (JAKS) 4QFY21 net loss narrowed to RM28.5m vs. a net loss of RM107.3m recorded in the previous corresponding quarter on the lower impairment losses. Stripping off the one-off impairments, 4QFY21 core net profit stood at RM21.8m vs. a core net loss of RM31.7m in 4QFY20. Revenue for the quarter, however, fell 56.4% YoY to RM20.1m.

• For FY21, cumulative net profit stood at RM51.9m against a net loss of RM84.6m in FY20. The reported earnings came in below expectations, making up to 50.6% of our forecasted net profit of RM102.4m and 53.0% of consensus forecasted net profit at RM97.8m. The variance is mainly due to the impairment losses. Excluding the impairment losses, FY21 core net profit at RM102.2m is largely within expectations.

• With the absence of new construction contract flows in 2021, we have now pencilled in RM100.0m of orderbook replenishment for 2022. Moving forward, the outstanding orderbook of RM245.1m will provide earnings visibility over the next couple of years. Meanwhile, JAKS tenderbook remain relatively unchanged at RM4.00bn, comprising mainly water-related and road-related construction works.

• The property development segment is expected to remain in the red on the back of the lacklustre occupancy rate. Although the economic activities have demonstrated signs of recovery as of late, we think that retail traffic footfall will remain largely below the pre-Covid-19 levels as new infection rates has yet to show signs of tapering.

• In general, the coal fired thermal power plant in Vietnam is expected to contribute to the bottom line over the foreseeable future. We gather that JAKS remains committed towards the expansion into the renewable energy sector, both local and internationally with 2 MoU signed in 2021 for the (i) potential collaboration on the development in renewable energy plants such as solar and hydropower in Sabah and (ii) development of 1,500-MW liquefied natural gas (LNG) power project in Vietnam. In the meantime, LSS4 project is slated to commence operations by 3Q23.

Valuation & Recommendation

• We maintained our BUY recommendation on JAKS, but with a lower target price of RM0.61 (from RM0.75) after adjusting to the impact of impairment losses that we reckon will drag onto FY22 performance as well.

• 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 - 25 Feb 2022