Jaks looks to exit loss-making property business

PETALING JAYA: Jaks Resources Bhd is expected to exit its loss-making property development business post the completion of its on-going Pacific Star project, and focus on domestic construction project and Vietnam power plant project going forward.

It was reported that the group’s property division continues to be loss making due to the liquidated and ascertained damages (LAD) penalty from the Pacific Star project and losses from its Evolve Concept Mall.

Jaks has a 51% stake in Evolve Concept Mall, Ara Damansara which opened in Q3 2015. As of January 2017, only 62% of its tenants opened for business.

“We believe the management will reduce its exposure post the completion of Pacific Star project, and is likely to dispose the remaining asset (Evolve Concept Mall) and land bank on its balance sheet,” Affin Hwang Capital Research analyst Ng Chi Hoong told SunBiz recently.

“However, the disposal exercise of Evolve Concept Mall might be challenging as it is still making losses,” he said.

Jaks did not respond to calls for comment.

Ng said he believes the biggest challenge for the group currently is to complete Pacific Star, as it has incurred losses due to LAD charges related to the project.

The whole mixed development project, which is estimated to command a RM1.1 billion gross development value (GDV), is scheduled for completion by end-2018.

Jaks’ net profit jumped more than seven times to RM7.54 million in the first quarter ended March 31, 2017, from RM1.07 million in the same period last year, on the back of higher revenue from its construction division.

The group’s profit during the quarter is primarily driven by its Vietnam engineering, procurement and construction work but partly weighed by losses from its property development and property investment divisions.

PublicInvest Research analyst Tan Siang Hing said in a report recently that the group’s property division incurred some RM10 million net loss during the quarter, due to operating cost and expenses related to financing cost and building depreciation of the Evolve Concept Mall amounting to RM8 million.

In addition, he said the Pacific Star project at Section 13, Petaling Jaya also incurred RM6.2 million LAD charges.

“With the property business continuing to be plagued by problems, we understand this segment will take a back seat for now, with plans to dispose the investment assets such as undeveloped land and Evolve Concept Mall in the near term,” Tan said.

Nevertheless, Ng said AffinHwang Capital Research is expecting stronger earnings from the group in coming quarters, due to higher construction revenue recognition from both the domestic construction project and its Vietnam EPC contract.

“Our net profit forecast for financial year 2017 is RM63.2 million,” he added.