JAKS’ price drop is overdone

In the stock market, investors usually over react to good or bad news. Bad news spreads rapidly.
You can see from the price chart of Jaks that it has fallen from Rm 1.83 to close at Rm 1.43 yesterday, a drop of 40 sen or 22% within 3 months.

Yet, on 7 Feb 2018 Affin Hwang Capital Research published an article soon after its analyst visited Jaks’ power plant project site in Hanoi, Vietnam with a target price of Rm 2.25 per share.
Author: kltrader | Publish date: Wed, 7 Feb 2018, 11:44 AM
We are reiterating our BUY call on Jaks Resources (Jaks) with a higher TP of RM2.25 (previously RM1.75), on the back of a higher valuation on Jaks’ 2x600MW Vietnam power plant project, post our recent visit to the site. We believe that management will complete the project on time, as it will play a significant role in bolstering Jaks’ chances of securing new power-related projects in Vietnam. Hence, we believe the risk of delay is minimal, providing better visibility and lower risk in the earnings delivery from the Vietnam EPC contract.

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You can read the full report if you click this link below

The sole reason for the price drop is due to the excessive selling by some weak shareholders who are afraid that Star will succeed in forfeiting Jaks’s Banker’s Rm 50 million performance guarantee for non-performance. The high court has fixed to hear the case on 11 May 2018. From my long experience in the contracting business, I believe Jaks has a very strong case.
Let me tell you the salient points of the contract.

Star agreed to sell its 6.1 acres of land to Jaks in exchange for an office building called Star Tower which is worth Rm 1352 million. Jaks succeeded in getting approval to build 2 office blocks and 3 residential blocks and below all these buildings is a podium with large basement car park on the land.

During the construction period, besides the office tower, Star wanted to buy one of the residential blocks which Star wanted it to be redesigned to an office building. To comply with Star’s requirement, Jaks has to change the design to submit for approval. This process has caused long delay for the construction completion.
In fact, Jaks has the right to claim for reimbursement of additional cost for the delay. Star must pay for all the cost for the staff and machineries on site and also head office expanses.

Based on the above, I believe the high court’s judgement on 11 May 2018 will be in Jaks’ favour.

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