Jaks Resources Bhd
(March 31, RM0.55)
Not rated, potential target price of 76 sen per share: Jaks Resources Bhd is principally involved in water supply, infrastructure construction projects, manufacturing pipes, and property development. The group has also secured an independent power plant (IPP) contract to construct two 600mw power plants in Hai Duong, Vietnam on a build-operate-transfer (BOT) basis.

Jaks has high earnings visibility for financial year 2015 (FY15) and FY16, supported by its unbilled sales of RM730 million from its current property development projects and outstanding construction order book of RM786 million. The group is planning to launch a mixed-use development project in USJ1 in the second half of FY15 with an estimated RM2 billion gross development value. Potential financial close of its IPP project in Vietnam, upcoming River of Life sewerage projects and potential water-related projects upon resolution of water issues in Selangor offer further earnings upsides.

Should Jaks be able to achieve financial close of its IPP project and launch the USJ1 development this year as planned, the stock could be valued at RM1.51 based on our sum-of-parts (SoP) valuation model. Even applying a 50% discount on our SoP valuation, the stock still provides a fair value of 76 sen, implying an attractive 37% upside.

The successful launch of the USJ1 project is crucial since it constitutes about 50% to our SoP valuation. Besides that, the group has capitalised about RM150 million incidental costs incurred for the development of the IPP project in Vietnam as at end-2014. As such, failure to secure extension of financial closure and/or carry out the project could lead to impairment of such costs. — AllianceDBS Research, March 31

This article first appeared in The Edge Financial Daily, on April 1, 2015.