• Jaks Resources’ (JAKS) 9M20 core-LATAMI of RM20.7m is below our expectation, as we were forecasting them to deliver around RM33.9m for the year.
• As the weaker-than-expected performance was due to higher losses from the property segment, we are not overly concern given that Jaks has already disposed the unit at end of 3Q20.
• Although we have cut our earnings for FY20E to factor in the weaker earnings, we have raised our TP to RM0.80, as we believe the completion risk for the power plant is now lower. Maintain BUY.

1 st unit of Hai Duong Power Plant is ready

According to CECC, the majority owner of Hai Duong power plant, the plant has completed the testing and commissioning process of the 1 st unit of the 1,200MW power plant ahead of schedule, and is now ready to supply electricity to the grid. The power plant is now pending the final approval from the authorities before they are able to start selling to the grid. As such, Jaks should be able to recognise some profit from the power plant before end of the year. We believe that given that CECC was able to deliver the 1 st unit ahead of schedule, there is a high likelihood that the 2nd unit could be completed ahead of time too, which is expected to be delivered within the next 6 months.

Higher losses from property segment

The weaker than expected performance for JAKS, is largely due to the weak set of results from its property development and investment division, which LBT (excluding the disposal gains) have widened to RM45m in 3Q20 from RM16m in 2Q20. The losses can be attributed to both the Pacific Star development project and also from the operations of its Evolve concept mall. Since Jaks has successfully dispose the Pacific Star project at end of 3Q20, we expect the losses for this segment to halve starting next quarter, as such we are not overly concern about the losses. JAKS has recorded an extraordinary gain of around RM43.4m related to the disposal exercise.

Reiterate BUY, with a TP of RM0.80

Despite cutting our EPS forecast for FY20E to factor in the higher than expected losses for 3Q20, we are raising our TP to RM0.80, as we revalue of the Hai Duong Power Plant, given that the completion risk is now lower. Despite the weaker than expected performance, we are still keeping our BUY call. Downside risk is unexpected delay to the start of Hai Duong Power Plant.

Source: Affin Hwang Research - 30 Nov 2020