JAKS’ outlook remains robust on Vietnam job profit recognition

JAKS Resources Bhd (March 1, RM1.68)

Maintain buy with an unchanged target price (TP) of RM2.25: JAKS has completed about 22% (RM401 million out of RM1.8 billion) of its Vietnam Engineering, Procurement, Construction and Commissioning contract which started in 2016, and management is confident that they can complete the project on time by 2020. As such we are expecting a higher revenue contribution from the project as Jaks ramps up its progress to meet the deadline. We are expecting JAKS to complete another 30% or RM540 million of construction work in 2018. However, the downside risk to earnings would likely be the strengthening of the ringgit as the project value is denominated in US dollars.

Excluding the land sale gain of RM88 million for 2017, the loss before tax for the segment has widened to RM22.3 million from RM19.8 million, due to the liquidated and ascertained damages cost related to the Pacific Star project, and also the losses from the Evolve Concept Mall. As the Pacific Star project will be completed by 2018, we are expecting the losses from the segment to narrow. Management has also indicated that they are currently looking at different strategies to revive the loss-making Evolve Concept Mall. We believe the near-term catalyst for the company is to reduce the overall losses from the property segment.

We maintain our “buy” call on Jaks, based on an unchanged revalued net asset valuation based 12-month TP of RM2.25. The stock valuation is still undemanding, trading only at 9.5 times 2018 earnings price-earnings ratio. The key factors of its performance will likely arise from the progress of its Vietnam project, construction order book wins, and the timing and value of the disposal of its non-core assets. — Affin Hwang Capital Research, March 1

This article first appeared in The Edge Financial Daily, on March 2, 2018.

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