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JAKS Resources (JAKS) posted 2QFY19 net profit of RM37.3m (+192.8% YoY, +30.4% QOQ) which was largely within our and consensus expectations. In 1H2019, the Group’s net profit of RM65.9m (+115.5% YoY) constituted 59% and 58% of our respective full year net profit forecast. We believe the subsequent quarters’ billings from its Vietnam EPC contract might not be as strong as this quarter, hence we deem these numbers in line. We understand that the overall progress for its Vietnam EPC contract is progressing well and has hit c.70% completion from 63% a quarter ago. All told, we are still wary over the various dilutive equity fund raisings done so far to meet its liquidity demands and the poor execution especially on its property business. Maintain Neutral on the stock with our TP of RM0.75 (pegged at 50% to SOTP).

    Power plant at 70% completion (from 63% in 1QFY19). EPC contract contributed another solid performance, with revenue rising +256% YoY to RM226.4m with RM54.3m in net profit (+237% YoY) recorded. Remaining works are expected to be completed by 2020. We understand that power plant should be able to achieve commercial operation date by mid-2020. So far, total revenue of RM1.21bn has been recognized from the job since 2016.

    Outstanding orderbook at RM1.07bn. In absence of new jobs, the Group’s outstanding orderbook depleted further to RM1.07bn, from RM1.37bn a quarter ago. We expect this trend to continue as the Group continues to focus its resources on its Vietnam power plant project.

    Property losses to drag till end-2019. We understand that with the on-going lawsuits with The Star Media Group (Star), the handover of the Star Tower has now hit a snag and would now need to wait for the court to determine if Star would need to take possession or otherwise. The remaining 3 blocks are still expected to be completed by end-2019. Unbilled sales as at 2QFY19 stood at RM121m (from RM128m a quarter ago). Loss at property development was RM13.5m; mainly due to the liquidated ascertained damages (LAD) provided during the quarter. Encouragingly, occupancy at Evolve Concept Mall is now said to be at 85%, up from 62% in 1QFY19 with recent signing of an anchor tenant which had taken up 154k sf. Management believes it can improve the occupancy rate further by end-2019 with the objective to achieve operational breakeven target.

Source: PublicInvest Research - 22 Aug 2019

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