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Reiterate Buy Call with unchanged target price (TP) of
RM1.53
 |
| Jaks Resources Bhd |
We met up with
management to get clarification on its FY15 results performance and the progress
of its flagship Vietnam project. We came back feeling reaffirmed with its
prospects premised on managements’commitment and focus
in executing its on-going projects, which are progressing well on time coupled
with its aim to de-gear further from its current net gearing levels of 1.0x
through the disposal of its investment property assets and development project.
Hence, we are reiterating our Trading Buy call on JAKS with an unchanged FV of
RM1.53 based on 25% discount to its SoP value of RM2.04.
2015, a year of
improvements. Recently,
JAKS just concluded its FY15 results, which registered Core Net Profit (CNP) of
RM14.5m and was lower than our full-year expectations of RM19.3m. Our CNP was
derived after excluding the net gains from the disposal of the 70% stake in a
subsidiary (RM30.1m), disposal gains on PPE (RM33.0m), impairment losses from
three of its divisions; which are construction (RM23.0), property (RM6.0m) and manufacturing
(RM7.0m), totalling to RM36.0m. However, we deem that performances are still commendable
as they manage to grow its CNP by 4.7x, YoY, albeit a lower revenue (-8%),
thanks to better contribution from its construction (+9%), trading (+11x)
division and also lower minority interest contribution (-72%).
Construction right on
track! One
of the major highlights during our meeting with JAKS was the progress of its
c.RM1.9b Vietnam project. According to management, the non-technical works are
progressing as planned and the ground-breaking ceremony is expected to take
place by month-end. Hence, they are expecting minimal contribution from Vietnam
in 1H16, as the contribution is only expected to gradually increase in 2H16
when construction progress picks up pace. As for its local projects, JAKS has
amassed a total outstanding orderbook of c.RM800.0m which coupled with property
unbilled sales of RM300.0m will keep them busy for the next 2–3 years.
De-gearing plans
intact. In
our previous report dated 6-Oct-15, we highlighted that management is looking
at the disposal of its 51%-owned mall in Ara Damansara i.e. Evolve Concept Mall
for a total consideration of c.RM450.0m. On top of that, management is also
looking at the possibility to secure an enbloc sale for its development
project, i.e. Pacific Star with an estimated GDV of RM300.0m in FY16. Notably,
JAKS managed to improve its net gearing to 1.02x in 4Q15, vis-à-vis 1.26x as
per our previous report, and we reckon that should they successfully proceed
with the two disposals as planned, JAKS would be in a strong net cash position.
More earnings upside! Should JAKS prove able
to proceed with its two planned disposals, we believe there could be more
earnings upside to our FY16-17E earnings, say by another 10%-15%, arising from
the potential interest savings from the full
settlement of its debts. However, we have yet to factor this into our FY16-17E
earnings estimates at this juncture, as the timing of the disposals remains
fluid.
Maintain Trading Buy. Post meeting, we felt
reassured with JAKS’ prospects given their timeliness in managing the progress
of their on-going construction projects, especially on its Vietnam’s
non-technical works, which are expecting to see major contributions from 2H16
onwards. Besides, we also like JAKS for its strong outstanding orderbook of
RM2.7b and unbilled sales of c.RM300.0m, providing them earnings visibility and
growth for the next 2-3 years. Hence, we reiterate our Trading Buy call on JAKS
with an unchanged Fair Value of RM1.53 based on a 25% discount to its
Sum-of-Parts value of RM2.04 (refer overleaf for more details), with an implied
FY16E PER of 7.1x which is still below our construction mid-cap average. We
deem that our applied discount of 25% to JAKS is fair as it is inline with the
SOP discount range of 25% - 30% applied to the developers cum contractors under
our coverage.
Source: Kenanga Research, 09 March 2016
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