JAKS Resources on track to unlock value of Vietnam project

KUALA LUMPUR:  AffinHwang Capital  Research expects earnings contributions from the Vietnam engineering, procurement and  construction (EPC) contract to pick  up pace from the second quarter of 2016 onwards as the ground-breaking ceremony for the power plant only took place around end-March. 

It said on Tuesday that upon getting the go ahead for the plant’s detailed design in 3Q16, JAKS would be able to progress with piling and other major infrastructure works. 

“Currently, we gather from management that JAKS is carrying out certain infrastructure related work such as building the jetty and the workers’ living quarters,” it said.

Affin Hwang Research reaffirmed its Buy call and maintained its 12-month target price of RM1.60, based on a 20% discount to its realisable net asset value) valuation of RM2.

“We believe JAKS is still on track to unlock value in its Vietnam project. Positive earnings surprises from the construction of non-technical work on the Vietnam project would be the key rerating catalyst for JAKS, in our view,” it said.

It said JAKS’s 1Q16 results were broadly within expectations. JAKS recognised its maiden earnings contribution from Vietnam, and should see stronger quarters ahead. 

“JAKS’s 1Q16 net profit of RM1.1mil accounted for 2% and 1% of our and consensus expectations respectively. We deem the results broadly within expectations, as we expect earnings contribution from its US$455mil (RM1.82bil) EPC work related to the Vietnam power plant to be more material in 2H16,” it said.

Affin Hwang Research said while the group’s 1Q16 revenue registered a decent on-year growth of 9.8% to RM122.8mil, 1Q16 net profit fell by 65.1% on-year mainly due to maiden depreciation charges and finance costs no longer capitalised in Evolve Concept Mall which fully began operations in 1Q16. 

The group’s topline growth was supported by maiden contributions from the Vietnam EPC contract and progress billings in its property segment. JAKS’s property unbilled sales now stands at RM300mil in 1Q16 (4Q15: RM333mil). 

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