JAKS Resources Bhd (JAKS) is primarily engaged in water supply and infrastructure construction projects, property development in Malaysia, as well as power generation in Vietnam. Commercial operations of the Vietnam Power Plant have begun and is expected to provide a steady stream of recurring income for the next 25 years. BUY with an unchanged target price of RM0.80 based on SOP (sum of parts) valuations, implying PER and 19.2x and 19x for FY22 and FY23 respectively.

To recap, the first unit of the Hai Duong Thermal Power Plant has commenced operation on 24 November 2020 while the second unit in January 2021. Based on management’s guidance, the 2x600MW power plant will provide a revenue of US$600m per annum. Assuming a 18% net margin and RM4/USD conversion rate, the JV (30%) will generate net income of RM130m per year for JAKS.

With the recent disposal of the 51% stake in JIC, JAKS is taking a step back from property development for the time being, in view that the local property sector’s outlook is expected to remain challenging for a foreseeable future. The company is now shifting its focus into the power and infrastructure construction businesses. JAKS was recently shortlisted for Package 2 (50 megawatt) under the Malaysia's fourth large-scale solar (LSS4) projects. Moving forward, JAKS is actively exploring other renewable power energy projects in Malaysia and Vietnam, such as hydro, solar and liquified natural gas power plants.

The company entered into several MOUs to explore collaboration on the development in renewable energy plants such as solar and hydropower in Sabah. JAKS also entered into a MOU with T&T Group Joint Stock Company to explore possibilities to develop the 1,500 MW liquefied natural gas (LNG) power project in Vietnam.

JAKS has been reporting consistent earnings in the past 2 quarters thanks to the contribution from Vietnam. We expect earnings to remain consistent in the coming quarters reflecting the full contribution from Vietnam. We maintain our FY22 numbers while introducing FY23 net earnings forecast at RM97.8m. Going forward, JAKS will continue to expand its business in the power and energy sector in Malaysia and Vietnam.

Source: Rakuten Research - 17 Feb 2022