This article first appeared in The Edge Financial Daily on May 16, 2019

Jaks Resources Bhd
(May 15, 75.5 sen)
Maintain neutral with an unchanged target price (TP) of 75 sen: JAKS Resources Bhd announced that it had entered into a memorandum of understanding (MoU) with Licogi 13, a joint stock company incorporated in Vietnam to acquire the Lig-Quang Tri (LQT) Solar Power Project as well as future joint-venture arrangements or sale and purchase transactions in respect of other solar and wind energy projects in Vietnam. This is consistent with the group’s plans to venture into the renewable energy business. The Lig-Quang Tri Solar Power Plant (LIG-QTSPP), sitting on nearly 60ha of land in Gio Hai and Gio Thanh communes in the Gio Linh district, has a designed capacity of 49.5MWh, generating 67.96MWh of electricity each year. We understand that the LQT Solar Power Project was built at a cost of US$47.26 million (or about RM197 million). Pending more details, our earnings estimates are kept unchanged for now. All told, we are still wary of the various dilutive effects of equity fundraising done so far and poor execution, especially of its property business. We maintain “neutral” with our TP of 75 sen unchanged for now pending completion of the latest private placement exercise.

We understand that the power purchase agreement for the LIG-QTSPP was executed on Oct 23, 2018 and this project has a life span of 50 years. Currently, the plant is completed and awaiting connection to the national grid. The MoU is non-exclusive to each party and it does not have any legal binding effect or binding commitment in respect of the proposed acquisition. Assuming a purchase price of US$50 million, we estimate that Jaks would need at least RM62.55 million cash (assuming 30% equity and 70% debt) to fund the solar power plant. As such, we suspect Jaks might need to yet again tap the equity market to fund the acquisition. — PublicInvest Research, May 15