• Jaks Resources (JAK) reported weaker-than-expected results. Core PATAMI of RM28.2m in 2020 was lower than expected due to higher losses from its mall operation

• However, management has guided better earnings in 2021, as their Vietnam power plant was completed ahead of schedule in January 2021 and has started supplying to the grid

• We maintain our TP to RM0.80 after factoring in the latest value of its property assets and the Vietnam power plant, and maintain our BUY rating

Hai Duong Power Plant Is Now Fully Completed

Management has guided that both units of the 2x600MW Hai Duong power plant has been completed ahead of schedule and has started selling electricity to the grid. We estimate that with the full contribution from the power plant moving forward would be about RM120m to the group PAT. We believe that management is also exploring the option to take up the additional 10% stake, as the power plant is has been completed, and the option will expire 3 years from the Commercial Operation Date (COD). However, JAK would require additional equity to take up the option as they do not have sufficient cash to pay for the additional stake, in our view. The 10% stake would likely cost about US$50m.

Property Segment Remains a Problem

The loss from JAK’s property segment was higher than we expected due to the lower rental income generated from its mall operation. As the rental income from its anchor tenant is based on revenue sharing, the reduction in footfall and spending have significantly reduced the revenue from tenants. JAK is also forced to write down the value of the mall, as they lower their rental revenue forecast. Although JAK is trying to increase the current occupancy rate from 65%, we believe that securing new tenants remains challenging in the current environment. Similarly, for its Pacific Star Business Hub which is also operating a loss has an occupancy rate of around 44%.

Reiterate BUY, as Income From Vietnam Would Start to Materialize

We revise our forecast for 2021/22 by +9.2%/-13.0% to factor in the higher losses from its mall operation, and also better contribution from the power plant in 2021. However, we maintain our RNAV-based TP at RM0.80, with most of the value derived from the power plant assets. We believe that future earnings would remain stable with the start of the power plant, hence keeping our BUY call unchanged.

Source: Affin Hwang Research - 30 Mar 2021