JAKS Resources’ (JAKS) 1QFY19 came in stronger at RM28.6m (+60.7% YoY) from net loss recorded a quarter ago primarily from higher than expected billings from its Vietnam EPC contract. Stripping out one-off RM19.7m of long term incentive plan (LTIP) charge out, the first quarter net profit is estimated to be c.RM48.3m, surpassing both our and consensus expectations at c.72% and c.55% of the full year profit forecast. The earning surprise was due to higher than expected progress recorded for its Vietnam EPC contract which is said to have hit 63% project completion, up from 46% done in 4QFY18. As such, we revised our FY19 upward by 68% after imputing higher billings from its EPC project. Although the EPC contract appears to have picked up speed, we are still wary over the various dilutive effect of equity fund raisings done so far and the poor execution especially on its property business. All told, we remain Neutral on the stock with our TP of RM0.75 (pegged at 50% to SOTP) unchanged for now pending completion of the latest private placement exercise.

• Power plant at 63% completion (from 46% in 4QFY18). EPC contract contributed a solid RM255.8m (+175.1% YoY) revenue and RM60.3m (139.3% YoY) in the 1QFY19. We understand that site progress is moving along within schedule and should be able to achieve commercial operation date by mid-2020. So far, total revenue of RM981.8m has been recognized since 2016 and likely to bill a bulk of the remaining works by end-2019.

• Outstanding orderbook at RM1.37bn (from RM1.7bn in 4QFY18). As expected, the Group’s outstanding orderbook depleted further to RM1.37bn, from RM1.7bn a quarter ago as the Group refocus its resources to its Vietnam power plant project. Currently, the EPC contract for the Vietnam IPP constituted 66% of the outstanding orderbook.

• Star Tower to complete by 2Q2019. The Group expects to handover the Star Tower soon and to complete the remaining 3 blocks from end- 2019. Unbilled sales as at 1QFY19 stood at RM127.8m (from RM154m a quarter ago). Loss at property development was RM6.6m; mainly due to the LAD of RM5.8m while property investment i.e. Evolve Concept Mall narrowed to RM3.9m from RM5.6m in 4QFY18. Occupancy at Evolve Concept is currently at 62% and Management believes it can improve the occupancy rate by end-2019 with the objective to achieve operational breakeven target.

Source: PublicInvest Research - 10 May 2019