JAKS expected to focus resources on Vietnam power plant project

This article first appeared in The Edge Financial Daily, on August 23, 2019.
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JAKS Resources Bhd
(Aug 22, 81.5 sen)
Maintain neutral with an unchanged target price (TP) of 75 sen:
JAKS Resources Bhd posted a net profit of RM37.3 million for the second quarter ended June 30, 2019 (2QFY19) or +192.8% year-on-year (y-o-y) and +30.4% quarter-on-quarter, largely within our and consensus expectations. For the first half of FY19, the group’s net profit of RM65.9 million (+115.5% y-o-y) constituted 59% and 58% of our respective full-year net profit forecast.

We believe the subsequent quarters’ billings from its Vietnam engineering, procurement and construction (EPC) contract may not be as strong as that for this quarter, hence we deemed these numbers in line. We understand that overall, its Vietnam EPC contract is progressing well — it’s about 70% completed from 63% a quarter ago.

However, we are still wary about the various dilutive equity raising of funds done so far to meet its liquidity demands and the poor execution especially on its property business. We maintained our “neutral” rating on the stock with our TP of 75 sen pegged at 50% to sum of total parts.

The EPC contract contributed another solid performance, with revenue rising 256% y-o-y to RM226.4 million and a net profit of RM54.3 million (+237% y-o-y). The remaining works are expected to be completed by 2020. We understand the power plant should be able to achieve commercial operation date by mid-2020. So far, a total revenue of RM1.21 billion has been recognised from the job since 2016.

In absence of new jobs, the group’s outstanding order book depleted further to RM1.07 billion, from RM1.37 billion a quarter ago. We expect this to continue as the group continues to focus its resources on its Vietnam power plant project.

We understand that with the ongoing lawsuits against The Star Media Group, the Star Tower handover has hit a snag and is now awaiting the court to determine if Star Media would need to take possession or otherwise. The remaining three blocks are still expected to be completed by end-2019.

JAKS’ unbilled sales as at 2QFY19 stood at RM121 million from RM128 million a quarter ago. A loss at property development was RM13.5 million, mainly due to liquidated ascertained damages provided during the quarter. However, the current occupancy at Evolve Concept Mall is said at 85%, from 62% in 1QFY19, with the recent signing of an anchor tenant taking up a 154,000 sq ft. The management believes it can improve the occupancy rate further by end-2019 with the objective to achieve its operational break-even target. — PublicInvest Research, Aug 22