This article first appeared in The Edge Financial Daily, on November 19, 2015.

Jaks Resources Bhd
(Nov 18, RM1.17)
Maintain buy with an unchanged target price (TP) of RM1.60: Jaks Resources Bhd’s nine-month period ended Sept 30, 2015 (9MFY15) results were below our expectations. Its 9MFY15 core net profit of RM12.2 million (+73.4% year-on-year [y-o-y]) accounted for just 54% of our full-year forecast due to lower-than-expected property unbilled sales recognition and construction profit. No dividends were declared.

While its third quarter ended Sept 30, 2015 (3QFY15) revenue grew 21.7% y-o-y, Jaks’ results were a miss because we had expected stronger revenue from its construction and property segments.Construction revenue in 3QFY15 fell by 10.4% quarter-on-quarter due to delays in obtaining certain licences from government authorities, which were subsequently resolved in 4QFY15.

The property division (+9.3% y-o-y) recognised more unbilled sales in 3QFY15, but were below our expectations due to prevailing soft market conditions. Property unbilled sales stood at RM364 million in 3QFY15 (2QFY15: RM386 million). On stable margins, lower finance costs and tax, Jaks’ 3QFY15 net profit doubled y-o-y.

We gather from Jaks’ management that the company is on track to receive an issuance of legal opinion this month by the Vietnam ministry of justice for a power plant project.

With this in mind, we still expect the project to begin construction in 1QFY16 and therefore make no changes to our FY16E (estimate) to FY17E earnings per share (EPS).

We have, however, lowered our FY15E EPS by 15.9% to reflect the weaker-than-expected 9MFY15 results.

We maintain our “buy” call and make no changes to our 12-month TP of RM1.60, based on a 20% discount to our realisable net asset value valuation of RM2, as our FY16E to FY17E EPS remain unchanged.

We believe Jaks is still on track to unlock value of its Vietnam project. Additional water-related infrastructure project wins and positive earnings surprises from the construction of non-technical works on the Vietnam project would be key rerating catalysts for Jaks. — Affin Hwang Capital, Nov 18