As you know the share price has been dropping due to the bad publicity caused by the dispute between Jaks and the Star. Many people have asked me to explain the episode.
About 6 years ago, Jaks made an agreement with The Star to buy the land. Instead of paying cash, Jaks agreed to build an office building for the land. Since Jaks did not pay cash, Star required Jaks to provide a Rm 50 million performance guarantee from the Bank.
However, during the period Star has requested numerous changes to the design that warrant the change of building plan. In addition, with the change of chairman, Star wanted to acquire additional building and asked JAKS to convert the building from residential to office use.
All these changes would require more time and expenses. Jaks had to alter the architectural and structural engineering design drawings for submission to the various Authorities’ approval.
Jaks had requested for the reimbursement of additional cost. While this dispute is not yet settled, as you can see a few days ago, Star wanted to forfeit the Rm 50 million performance guarantee and Jaks had applied to the court for an injunction to stop Star’s action.
The building is about 97% completed. I think Jaks has a very strong case to win the reimbursement for additional cost.
How investors react?
In the stock market, investors always overreact to good or bad news. Moreover, bad news spreads like wild fire. As a result, shareholders quickly dump their holdings without second thought.
In any case, the reason for them to buy the shares is to see the 1,200 MW power plant completion for the Vietnamese Government. After the power plant completion, Jaks will receive more than Rm 100 million net profit per year for 25 years. During the 3 years construction period, the Chinese JV partners will give Jaks Rm 454 million. In the 1st year, Jaks has already received about one third of the money and the remaining money will be given to Jaks during the next 2 years.
Sometimes, I too have my doubt. Fortunately, the analysts from Public Bank and Hwang Affin have published their recommendations after their site visit with a target price of Rm 1.75 and Rm 2.25 per share respectively.
I trust this article will discourage shareholders from dumping their holdings.
Remember patience is the key to successful investment.
