KUALA LUMPUR: Jaks Resources Bhd is likely raking in higher profit contribution in the second quarter (Q2) ending June 30, 2021, on the back of the full contribution from engineering, procurement, construction and commissioning (EPCC) contracts.
Affin Hwang Investment Bank Bhd said Jaks' joint-venture (JV) company in Vietnam, Jaks Pacific Power Ltd (JPP), would also be recognising the remaining RM81 million of EPCC contracts in the coming quarters this year.
"It is still pending the final sign-off from the engineers. We reckon there is high possibility that Jaks would take up the additional 10 per cent equity stake, after the plant is fully stabilised. The additional stake would likely cost around US$50 million," analyst Ng Chi Hoong said in a research note today.
JPP is the owner of Jaks Hai Duong Power Plant (JHDP), an independent coal-fired power plant with a total of 1,200 megawatts capacity via a shareholding between Jaks (30 per cent) and China Power Engineering Consulting Group Corporation (70 per cent).
He said Jaks' growth in associate income quarterly from RM7.6 million in the fourth quarter of 2020 to RM29.8 million in the first quarter of 2021 was due to the completion of the second unit of the 2x600MW Hai Duong power plant, which started supplying to the grid at end of January 2021.
However, he said domestic market remained a drag to Jaks mainly due to the higher losses from its local operations.
"The impact of Covid-19 on both its property investment assets and local construction arm. Several of the prospective tenants for the Pacific Star Business Hub had decided to pull out, due to the uncertainty in the economy outlook, which resulted in the overall tenancy to remain at 31 per cent."
Meanwhile, the rental collected from Evolve Concept Mall has also taken a hit, as most of its rental is based on a percentage of sales made by the tenants, but overall sales have been struggling since the start of Covid-19.
"We maintain a buy call with an unchanged target price of RM0.80. We lower our FY21-FY23 earnings per share forecast by 5.1 per cent to 17.8 per cent to factor in the higher losses from its mall operation, and also better contribution from the power plant in 2021.
"We believe future earnings would remain stable with the start of the power plant," Affin Hwang said.
Downside risks included unexpected operational issues at the company's Hai Duong power plant, it added.