JAKS Resources Bhd (JAKS) can expect its Vietnamese thermal power plant project to continue to anchor its bottom line in 2H 2021.
This comes amid bleak prospects on the local front with the absence of new contracts expected to prolong amid uneven recovery in the construction sector while its property development segment is expected to remain ‘bleeding’ owing to lacklustre occupancy rate.
“We reckon that attempts to increase the occupancy rate will remain a large hurdle at current time,” projected Malacca Securities Research analyst Kenneth Leong in a results review.
“Still, the outstanding order book of RM282.1 mil will provide earnings visibility over the next few years. Further clarity is expected to be seen in the upcoming Budget 2022 announcement. In the meantime, JAKS tender book stood at RM4 bil.”
Although Vietnam has entered into an extended lockdown since July, the research house expects the utilisation rate of JAKS’ build-operate-transfer (BOT) thermal power plant in the Hai Duong province to remain afloat (above 70% level) supported by sustainable demand.
“Under the prevailing situation, we believe that JAKS’ management will be deliberating the option raise additional 10% stake in the power plant once operational cash flow from the aforementioned venture yields further results,” opined Malacca Securities Research.
“Meanwhile, JAKS is also actively exploring for renewable infrastructure projects in Vietnam to boost their recurring income stream.”
JAKS saw its 2Q FY2021 net profit sky-rocketed 1,233% to RM28.8 mil year-on-year (yoy) (2Q FY2020: RM2.16 mil), lifted by contribution from the Vietnam power plant following its commencement of operation since end-2020. However, revenue for the quarter fell 44.5% yoy to RM41.6 mil (2Q FY2020: RM75 mil).
For 6M FY2021, the company’s cumulative net profit stood at RM48.6 mil against a net loss of RM4.1 mil recorded in the previous corresponding quarter. However, revenue for the period slipped 60.7% yoy to RM59.04 mil.
The reported earnings came slightly above expectations, making up to 54.6% of Malacca Securities Research’s forecasted net profit of RM89 mil and 45.4% of consensus forecasted net profit at RM107 mil.
All-in-all, the research house maintained its “buy” rating on JAKS with a slightly higher sum-of-parts (SOP)-derived target price of 72 sen (from 75 sen previously)
“Risks to our recommendation and target price include lower-than-expected utilisation rate or unexpected increase in overhead cost in Vietnam IPP (independent power producer) project,” cautioned Malacca Securities Research.
Two other risk factors include failure to meet the research house’s construction order book replenishment assumption of RM100 mil per annum and the fact that JAKS’ Vietnamese operations are denominated in the US dollar whereby a firmer US$/RM movement will be favourable and vice versa.
At 10am, JAKS was up 1 sen or 1.94% to 52.5 sen with 54.15 million shares traded, thus valuing the company at RM1.07 bil. – Sept 8, 2021
