• Despite Jaks Resources (Jaks) having turned profitable in 2Q20, its performance was still below our expectation, as 1H20 LATAMI of RM4m tracked behind our previous full-year PATAMI forecast of RM37.7m
• However, there is some encouraging progress, as it has handed over the troubled Star Tower, and is in the midst of testing and commissioning the 1st Unit of Its Hai Duong Power Plant
• Although we have lowered our earnings forecast for FY20 by -16%, we have maintained our RNAV-based TP of RM0.88, and upgraded our call to BUY from Hold on valuation grounds

Vietnam Power Plant Is Now 95% Completed

Revenue contribution from its Vietnam (Hai Duong) power plant was flat qoq, as there was limited manpower on the ground due to the outbreak of COVID-19. However, as work has restarted progressively since May, overall completion of the power plant is now at 95.1%. Management remains confident that it can meet the COD deadline for Unit-1, as the company has already started the testing and commissioning process. We expect maiden contribution from the power plant by the end of 2020, albeit marginal for now. A timely completion of the power plant would help ease investors’ concerns about Jaks’ execution capability.

Positive Progress on Pacific Star Project

Jaks has finally managed to hand over the long-overdue Star Tower on 6 July 2020 to the Star Media Group (SMG), which was supported by the recent High Court judgement. However, Jaks is still appealing the case, as it believes the cause of the delay was with SMG. The court ruled that the overall claim SMG is entitled to is around RM50.5m, of which RM50m had already been paid out. For the remaining residential and office units in the Pacific Star project, management confirmed existing guidance that this will be completed by 3Q20. We view this progress as positive, as the completion of the lossmaking Pacific Star by end-2020 would put Jaks in a better financial footing in 2021.

Upgrade to BUY With An Unchanged TP at RM0.88

We have cut our EPS forecast for FY20 by 16% to impute the higher cost and losses for its property segment in relation to COVID-19. However, we keep our SOTP-derived TP unchanged at RM0.88 and upgrade our call to BUY from Hold on valuation grounds. A downside risk would be Jaks failing to obtain the CCC for both the residential and office units, as the LAD charges are around RM35m a year.

Source: Affin Hwang Research - 27 Aug 2020