Jaks Resources (JAKS) reported a decent set of numbers, 2018 corePATAMI of RM34.8m (-6% yoy) beat both our and consensus forecast, delivering 106% and 118% of our respective forecast. The decline in profitability is mainly due to higher losses arising from its property segment, which we believe losses will minimize by end of 2019. We are maintaining our BUY and TP at RM0.90 unchanged, as we believe that JAKS would be able to deliver stronger results from its Vietnam EPC work.

On Track for Completion by 2020

Management has indicated that the overall power plant is 46% completed, and their EPC portion at 40%, hence they believe that the plant is on track to meet COD by mid-2020 as per the PPA contract. We believe that Jaks would recognise around RM1.08bn of revenue from the remainder of the EPC contract in 2019 and 2020. The gap in the completion progress is due to the main contractor focusing its effort in the main boiler units as the machineries are already on site. Nevertheless, the contractors would also need to complete Jaks EPC work order before they can test the plant.

Still Guiding to Complete Pacific Star by 2019

Core-LBT for the segment widened to RM74.5m for 2018, due to an increase LAD for its Pacific Star project and higher operating cost at its mall operation. Management has not change its guidance on the Pacific Star completion date of 1H19. The completion of the project is crucial to Jaks, as it has been diluting the gain from its Vietnam project and is weighing down Jaks’ working capital. We believe LBT for the segment can reduce by half once Jaks completed the project.

Maintain BUY With Unchanged TP of RM0.90

We did some minor tweaks to our EPS for 2020E to factor in the latest progress work of its Vietnam EPC project. However, we have maintained our TP unchanged at RM0.90, and keeping our BUY call unchanged given its undemanding valuation. We believe that the near-term catalyst for Jaks is for them to complete Pacific Star by 1H19.

Risks to Our Call

Downside risks to our call are 1) wider losses from its property segment; and 2) slower recognition from its Vietnam EPC contract.

Source: Affin Hwang Research - 1 Mar 2019