Jaks Resources Bhd’s (JAKS) 1QFY23 core net profit fell 33.4% YoY to RM14.1m, dragged down by lower contribution from Vietnam due to higher interest expenses arising from the rising interest rates. Revenue for the quarter contracted 20.7% YoY to RM14.2m.
The weaker-than-expected core net profit, accounts to 14.6% of our forecasted core net profit of RM96.2m. The variance was mainly due to the weaker-than-expected contribution from Vietnam. Still, we reckon that earnings sustainability from Vietnam may continue to cushion the weakness in the local operations.
Moving forward, the construction segment will focus onto the completion of outstanding orderbook of c.RM200.0m. We gather that the tenderbook remains healthy at RM2.00bn, mainly for hospital-related and water-related infrastructure jobs in relation to flood mitigation projects. We have imputed an orderbook replenishment assumption of RM50.0m for FY23f.
On the property investment segment, efforts to ramp up occupancy rates in both Pacific Towers and Evolve Concept Mall remain in place. The building management of Evolve Concept Mall was replaced in April 2023 in bid to rejuvenate the current dire situation. Still, we reckon that turnaround efforts may be challenging, owing to the oversupply of commercial floor space.
Elsewhere, the LSS4 project was completed (6 months ahead of scheduled commercial operation date) and aims to commence the commercial operations sometime in mid-June 2023. The group will continue to explore greenfield projects and acquisitions within the renewable energy sector in both Malaysia and Vietnam. With the completion of LSS4, JAKS will be eyeing a slice of 600MW of Corporate Green Power Programme (CGPP) programme from Malaysia’s Energy Commission.
JAKS is undertaking a private placement exercise and proceeds will be utilised to repay existing debts and fund working capital. We reckon that the move is essential, given that the group is operating in a negative net cash flow position over the past 8 quarters.
Valuation & Recommendation
Following the weaker-than-expected reported numbers, we trimmed our core net profit forecast by 29.2% and 28.6% to RM68.2m and RM71.3m for FY23f and FY24f respectively, adjusting to the weaker contribution from Vietnam. Still, we maintained our BUY recommendation on JAKS with a lower target price of RM0.27.
Our target price is derived by sum-of-parts (SOP) approach as we ascribed a target PER of 7.0x to both its construction and property investment segments as we expect the pace of recovery to be measured. Meanwhile, we valued both its concession businesses (coal fired thermal power plant and LSS4) on a discounted cash flow approach.
Risks to our recommendation and target price include lower-than-expected utilisation rate or unexpected increase in overhead cost in Vietnam IPP project. Delay in commercial operation date of LSS4. The Vietnam operations are denominated in USD whereby a firmer USD/MYR movement will be favourable and vice versa.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....