Jaks Resources (JAKS) reported a very good set of 1QFY19 numbers – core PATAMI of RM38.7m (+202% qoq, 117% yoy) beat both our and consensus forecasts, delivering 39% and 43% of the respective full-year forecasts. The stronger-than-expected performance was mainly driven by higher revenue recognition of its Vietnam EPC project, as work progress started to catch up. We are reaffirming our BUY call and 12-month TP of RM1.00, as we believe Jaks’ strong earnings momentum is sustainable.

Completing the Power Plant Ahead of Time

The power plant was 56% completed as of end-March, and based on the current progress rate, we believe that there is a high possibility that the power plant would be completed ahead of schedule (before mid-2020). Progress for Jaks’ EPC portion was also higher in 1Q19 as it sped up its work to match the progress of the power plant. We have revised our completion target for this year to 83% from 77% to factor in the higher revenue recognised during the quarter, which is the main driver for the earnings forecast revisions for FY19-20E.

Reaching a Significant Milestone Soon

The continuation of losses from the property segment (1Q19: -RM14.5) is within our expectation, due to the LAD for its Pacific Star project and losses from its mall operation. Management believes that the company is still on track to deliver the project by the end of the year, and is likely to hand over The Star Tower within the next few months. We believe that handing over the building would also improve investor sentiment, which had been affected by lawsuits on the “late” completion of the building.

Maintain BUY With Unchanged TP of RM1.00

We have revised our EPS forecasts for FY19/20 by +15.7%/-15.9% to factor in the current progress work of its Vietnam power plant. However, we maintain our SOP-based 12-month TP at RM1.00 (post-dilution of the upcoming private placement) and reaffirm our BUY call given its undemanding valuation. We believe that the near-term catalyst for Jaks would be the handover of The Star Tower within the next few months.

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 - 10 May 2019