PERHAPS yesterday’s (July 28) revelation that JAKS Resources Bhd has succeeded in the appeal against the High Court decision to pay damages to Star Media Group Bhd in relation to the latter’s corporate guarantee claim will be eclipsed by a verbal warfare between two prominent stock market punters over the company’s prospect.
As renowned one-man institutional fund Koon Yew Yin a.k.a Uncle Koon and investment guru Ooi Teik Bee (OTB) continue to fiercely defend their opinion over JAKS’ outlook, Malacca Securities Research viewed the court verdict to be favourable to restore JAKS reputation among investors.
This is especially so after the company has been clouded by uncertainties over the past two years amid concern over potential impairments from the court case.
“Moving forward, JAKS will continue to focus on current operations as well as business expansion plans, particularly in the power and renewable energy business segment,” reckoned analyst Kenneth Leong in a company update.
To re-cap, the aforementioned claim is related to the balance purchase price of RM134.5 mil for the sale of a piece of land in Section 13, Petaling Jaya from Star Media to JAKS.
Star Media filed a legal suit against JAKS on April 30, 2019, claiming RM134.5 mil in balance purchase price along with late payment interest of RM50.5 mil.
JAKS undertook the development of Pacific Star which comprises a 15-storey office block (Tower A) on the said land but missed the deadline to deliver the tower to Star Media after a delay of 28 months.
“Given the favourable outcome in overturning the High Court decision, we made no changes to our earnings forecast, pending the upcoming quarter results (2Q FY2021) to be released tentatively by end of next month,”
“Therefore, we maintained our “buy” recommendation on JAKS, with an unchanged target price of 72 sen.”
Malacca Securities Research further noted that risks to its recommendation and target price include lower-than-expected utilisation rate or unexpected increase in overhead cost in JAKS Vietnam independent power producer (IPP) project.
“(This includes) failure to meet our construction order book replenishment assumption of RM100 mil per annum. The Vietnam operations are denominated in US dollar whereby a firmer US$/RM movement will be favourable and vice versa,” opined the research house.
On JAKS’ Vietnam power plant operations, Malacca Securities Research expects the balance of RM81.7 mil engineering, procurement, construction and commissioning (EPCC) works to be recognised in subsequent quarters while the local construction order book of RM232.6 mil (as of 1Q FY2021) will sustain revenue visibility till 2022.
Under the prevailing situation, the research house expects the construction and property sector is to remain beset by temporary halt in work orders until Malaysia’s economic activities gradually return towards pre-COVID levels.
Still, Malacca Securities Research expects the Hai Duong power plant to be JAKS main profit driver over the foreseeable future, which is able to cushion the other segment’s weakness.
“After a washout year in FY2020, we expect JAKS to remain profitable in subsequent quarters,” projected the research house.
“On LSS4 (large-scale solar programme), construction works is expected to commence in 2022 and expected to be operational by 1Q 2023. Upon completion, we have penciled mid-high single digit IRR which will see net margins between 10-15%.”
At 10.07am, JAKS was unchanged at 52.5 sen with 6.28 million shares traded, thus valuing the company at RM1.07 bil. – July 29, 2021
