We are maintaining our BUY call on Jaks Resources (JAKS) with an unchanged TP of RM2.25, as the core PATAMI for 2017 at RM37.1m (+37.5% yoy) surpassed our full year forecast. Headline net profit grew by 158x, mainly driven by two land sales and the reversal of LAD related to an earlier construction project. We believe the growth outlook for Jaks remain robust, as we believe Jaks will benefit from the higher earnings recognition from its Vietnam EPCC contract moving into 2018.

Vietnam Construction More Than 20% Completed

Jaks has completed around 22% (RM401m out of RM1,800m) of its Vietnam EPCC contract, which started since 2016, and management is confident that they can complete the project on time by 2020. As such we are expecting a higher revenue contribution from the project, as Jaks ramps up its progress to meet the deadline. We are expecting Jaks to complete another 30% or RM540m of construction work in 2018. However, the downside risk to earnings would likely be the strengthening of MYR, as the project is based in US$.

Working to Fix the Problem in Its Property Segment

Excluding the land sale gain of RM88m for 2017, the LBT for the segment has widened to RM 22.3m from RM 19.8m, due to the LAD cost related to the Pacific Star project, and also the losses from the Evolve Concept Mall. As the Pacific Star project will be completed by 2018, we are expecting the losses from the segment to narrow. Management has also indicated that they are currently looking at different strategies to revive the loss making Evolve Concept Mall. We believe the near-term catalyst for the

Maintain BUY With and Unchanged TP of RM2.25

We maintain our BUY call on JAKS, based on an unchanged RNAV-based 12-month TP of RM2.25. The stock valuation is still undemanding, trading only at 9.5x 2018E PER. The key risks will likely arise from: 1) the progress of its Vietnam project, 2) construction order book wins, and 3) the timing and value of the disposal of its non-core assets.

Source: Affin Hwang Research - 1 Mar 2018