Summary

• Jaks Resources Bhd’s (JAKS) 1QFY22 net profit improved 7.0% YoY to RM21.1m, mainly due to the higher share of profit in the Vietnam joint venture given that the second unit of Hai Doung power plant achieved commercial operations in January 2021. Revenue for the quarter rose 2.2% YoY to RM17.8m.

• The reported earnings came in at 30.8% of our forecasted net profit of RM68.5m and 18.7% of consensus forecasted net profit at RM113.0m. We deemed the figures to be in line in anticipation of the usual year-end kitchen sinking exercise in the construction and property development segments.

• Moving forward, we reckon that the construction segment will remain low profile in absence of orderbook replenishment in recent times. The outstanding orderbook of RM245.1m will provide revenue 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 challenging on the back of the lacklustre occupancy rate. We expect the retail traffic footfall in the group’s properties to remain sluggish amid the overloaded retail space scenario. Nevertheless, JAKS remains committed to ramp up the occupancy rates of Pacific Towers Business Hub (which is at 31.0%, unchanged from 4QFY21) and re purposing of Evolve Concept Mall (occupancy rate at 67.0%) into event hosting, re creational activities and focus on premium retirement/wellness home, nursery, maternity centre, co-working space and digital economy.

• We expect the coal fired thermal power plant in Vietnam to remain as a key profit driver in FY22f and the foreseeable future. The group also aims to strengthen the power-related business 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. At the same time, we gather that the progress of LSS4 project remains well on track and is slated for completion in 1Q23.

Valuation & Recommendation

• We maintained our BUY recommendation on JAKS, but with a lower target price of RM0.55 (from RM0.61) in view of the sluggish construction and property development business segments.

• Our target price is derived by sum-of-parts (SOP) approach as we ascribed a lower target PER of 7.0x (from 9.0x) to both its construction and property development segments as we expect the pace of recovery to be measured. 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 Jun 2022