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We met up with JAKS Resources (JAKS) management recently and were guided that the overall progress of their power plant in Vietnam is still on track to achieve commercial operation date (COD) by 1H2020. That said, we are still wary of the slow billings of its Vietnam EPC contract which commenced construction in March 2016. The stocks’ recent price run has surpassed our earlier fair value ascribed which suggested a TP of RM0.65, derived from c.60% discount to our earlier SOTP estimates. All told, we maintain our Neutral but reduce our discount from 60% to 50% to our revised SOTP of RM1.50 given recent sector re-rating on revival of certain mega projects, yielding a new target price of RM0.75. Although the remaining earnings from Vietnam (estimated c.RM280m) could surprise on the upside, we believe near term earnings could still be dragged by losses from its property business i.e. property development and property investment which currently amounts to c. RM15m a quarter, but of which we have sufficiently accounted for in our earnings estimates. Execution of its power plant in Vietnam is of paramount importance and we would rather err on the side of caution on the execution risk for now.

    Power plant at 46% completion. We understand that as at Jan 2019, the power plant has achieved 46% project completion, with significant billings expected in FY19. Management is confident of completing the power plant on schedule and likely to achieve commercial operation date in 1H2020. Key milestones to complete in 2019 are the completion of main plant’s boiler, turbine & generator and other ancillary buildings such as jetty and administration building. Outstanding orderbook from the EPC contract 2 is c.RM1.2bn as at December 2018 or c.70% of the outstanding orderbook of RM1.7bn. Thus far, the project has secured c.USD1001m in funding with USD859m remaining to be sourced.

    Property Losses. We understand that the property losses will continue this year albeit narrowing by year-end, as per management guidance. The Evolve Concept Mall’s occupancy is still hovering at around 62% with JAKS looking to fill up the space vacated by a big tenant recently by converting it into a recreational sports center. It aims to achieve operating breakeven point by end-2019. As for the property project, Pacific Star, the remaining buildings are expected to be completed by end-2019 as well, with The Star tower to be handed over soon. Unbilled sales from Pacific Star are RM153m.

Source: PublicInvest Research - 17 Apr 2019

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