Summary

• Jaks Resources Bhd’s (JAKS) 4QFY22 core net profit jumped 100.2% YoY to RM113.7m, lifted by the higher contribution from the share of profit in the Vietnam joint venture. Revenue for the quarter climbed 147.2% YoY to RM45.9m.

• For FY22, cumulative core net profit declined marginally by 1.9% YoY to RM100.2m, making up to 122.2% of our forecasted core net profit of RM82.0m. The variance is mainly due to better-than-expected contribution from Vietnam and lower-thanexpected losses registered under the property development segment.

• Given the absence of new orderbook replenishment, we reckon that the construction segment may continue to remain in red, while the balance EPC works at Vietnam is expected to be recognised progressively in subsequent quarters. Moving forward, outstanding orderbook of c.RM150.0m will provide revenue visibility over the next 2 years.

• On the property investment segment, efforts to ramp up occupancy rates in both Pacific Towers and Evolve Concept Mall remain in place, but the prolonged overhang of commercial property situation in Malaysia is expected to remain in the picture over the longer run.

• Elsewhere, the LSS4 project is well on track for commercial operation next month. We believe that the aforementioned project is expected to generate approximately RM10.0m per annum to bottom line over 25-year period. Elsewhere, there was no progress over the MoU entered with Qhazanah Sabah Sdn Bhd.

• Meanwhile, we gather that JAKS is currently taking a private placement exercise of up to 292.9m new shares, representing 10.0% of total existing shares. Proceeds will be utilised to repay credit facilities. While there will be dilution effect, we reckon that the move may be able to generate a cost saving of RM4-5m per annum, under the maximum scenario. This will in turn expect 4-6% improvement in bottomline figures.

Valuation & Recommendation

• Despite the stronger-than-expected earnings, we made no changes to our earnings forecast as we expect softer margins ahead due to the elevated building material costs which we reckon that both the construction and property investment sector may continue to lag behind the recovery. Therefore, we maintained our BUY recommendation on JAKS with an unchanged target price of RM0.39.

• Our target price is derived by sum-of-parts (SOP) approach as we ascribed a target PER of 7.0x to both its construction and property investment segments as we expect the pace of recovery to be measured. Meanwhile, we valued both its concession businesses (coal fired 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. Delay in commercial operation date of LSS4. The Vietnam operations are denominated in USD whereby a firmer USD/MYR movement will be favourable and vice versa.

Source: Mplus Research - 27 Feb 2023