Jaks Resources (JAKS) reported a relatively weak set of numbers - 1Q20 core-LATAMI of RM6.2m was below our estimate as we had previously forecasted a full-year profit of RM47.7m. The weaker-thanexpected performance was due to a decline in construction revenue for its Vietnam Power Plant project as progress was negatively impacted by the outbreak of COVID-19. Losses from its property segment have also widened. As such, we are cutting our EPS forecasts for FY20E by 21%, but keeping our HOLD call and TP unchanged at RM0.88.

Vietnam Power Plant Will be Completed on Time

Overall construction revenue has declined by 72% yoy, as there was limited work done on Jaks’ Vietnam power plant in 1Q20. Overall completion remains unchanged at 93% (as of end-May) since 4Q19. The lack of progress was due to the lack of workers, as its workers from China didn’t return post LNY as China was faced with the outbreak of COVID-19. Despite the lack of progress, management is confident that they can meet the deadline for Unit-1 COD by Nov’20, as work has restarted progressively since May. As such, earnings in the 2Q20 are likely to be weak before recovering in 3Q20.

Positive Progress on Pacific Star Project

Management guided that they have successfully gotten the certification of completion (CCC) for the Star Tower, which we believe is the first step to help resolve the ongoing lawsuit in relation to the late delivery on the building. Management is also confident that they can complete the remainder of the Pacific Star project by 3Q20. However, post the completion of the project, Jaks will also need to resolve the payment of LAD, which is likely to be around RM110m-RM130m. Unless Jaks is able to resolve the payment, Jaks might need to raise more funds before the end of 2020, as the current rights issue is for the equity stake for its Vietnam power plant.

Maintain HOLD With An Unchanged TP at RM0.88

We have cut our forecast for FY20E by -21% to impute in higher cost and losses for its property segment in relation to COVID-19. However we are keeping our SOTP-derived TP unchanged at RM0.88, while maintaining our HOLD call. There is risk to our earnings forecast, should JAKS fail to obtain the CCC for both the residential and office units, as the LAD charges are around RM35m a year.

Source: Affin Hwang Research - 1 Jul 2020