Although Jaks Resources’ (JAK) 9M17 core profit of RM17m is tracking behind our expectation, achieving only 57% of our full-year forecast, we are confident that our forecast is achievable given the likely higher contribution from its Vietnam EPC project in 4Q17. During the quarter, JAK booked another write-back on its LAD of c.RM18.1m, which came as a positive surprise to us. We maintain our BUY call on JAK, with a higher TP of RM1.75, as we roll forward our valuation and given the better visibility on its Vietnam EPC contract.

Expecting a Stronger Pick-up From Vietnam in 4Q

While the Vietnam EPC recorded a 1.7% yoy decline in revenue, profit from the segment for 9M17 at RM35.4m was up by 18% yoy, and it is the most profitable project for JAK. Although revenue growth for the first 3 quarters appears to be on a declining trend, management has indicated that the trend should reverse as it is expecting a stronger growth momentum in 4Q (as more work is expected to be done before the Chinese New Year holiday). As such, we are expecting contribution from the segment to double in 4Q from the RM10.2m recorded in 3Q.

Property Segment Losses Widen Without Write-back

The property segment recorded a small PBT gain of RM1.0m for 3Q17, which is a significant improvement over the losses from the previous quarters. We believe that this was mainly due to the reversal of an LAD (liquidated and ascertained damages) provision which totalled RM18.1m. Excluding this, the segment LBT widened qoq to RM17.1m from RM13.9m. However, we expect the losses to narrow as LAD costs would be reduced as JAK starts to deliver the units to its buyers in 1Q18. Recent sales numbers for the project is also encouraging, as it has sold close to 94% of the units (office + apartments) of the Pacific Star project.

Reaffirm BUY Call With a Higher TP of RM1.75

We are maintaining our BUY call on the stock, with a higher RNAV-based 12-month TP of RM1.75, as we roll forward our valuation to 2018E and given the better visibility of its Vietnam EPC contract. The key downside risks could arise from: 1) the progress of its Vietnam project, 2) domestic construction order book wins, and 3) higher-than-expected losses from its property segment.

Source: Affin Hwang Research - 23 Nov 2017