JAKS Resources (JAKS), contrary to our earlier expectations of stronger earnings in 4QFY16, delivered a net loss of RM24.0m during the quarter. However, the earning miss was primarily due to deferment of profit recognition in Vietnam and certain one-off items. All in, the headline net profit in FY16 was only at RM0.7m, far cry from our and consensus expectations of full year net profit of RM40.6m and RM44.2m respectively. We had earlier expected profits from its power plant construction in Vietnam to drive its 4QFY16 net earrings, but the profit from Vietnam is now deferred to FY17. That said, we understand that substantial progress has already been done for the equipment that was originally to be partly-recognized in 2016 but now deferred to FY17 upon completion and delivery to site. Separately, JAKS also announced a private placement of up to c.10% of existing issued shares or c.43.m shares estimated to raise RM52.6m to be used as working capital and to finance construction costs of on-going projects. Earnings are kept unchanged for now. Maintain Outperform and RM1.50 TP, derived from c.30% discount to our SOTP estimates of RM2.20, or implied c.10x of FY17 EPS.

• Construction division. With absence of contribution from Vietnam, revenue growth in 4QFY16 was mainly from local construction projects. Outstanding order book is estimated at RM2.76bn, with c.RM2.74bn from its Vietnam IPP EPC contract. Contribution from Vietnam is expected to gather pace in 2H2017, and hence we expect the Group’s earnings to be stronger thereafter.

• Property division. Revenue in 4QFY16 was mainly driven by Pacific Star, which currently has unbilled sales of RM361.6m (+RM128.2m QoQ). However, as expected, the property division’s earnings were dragged by Evolve Concept Mall, which registered a loss of RM7.3m (JAKs’ 51% stake of RM3.7m). Separately, it also incurred LAD provision of RM11m for Menara Star 2 during the quarter but we understand that it has a good chance to write back these losses. As indicated in our earlier report, we understand property business will take a back seat for now, with plans to dispose the investment assets such as undeveloped land and Evolve Concept Mall in the near term.

Source: PublicInvest Research - 28 Feb 2017