As you know, there is always some risk in buying any share. I must admit my mistake in buying too many Jaks shares which is disappointing. I was so bullish because I thought I could make money as I did in Latitude, Lii Hen and VS Industry, all of which had gone up a few hundred percent within 2.5 years.
My main reason for buying Jaks is its 1,200 MW power plant, generating electricity for the Vietnamese Government. I was so sure that the consortium of 3 Chinese national banks would have examined the power purchase agreement thoroughly before they would finance Rm 7.76 billion for the project. It is like the banks are guaranteeing profit for Jaks.
The whole project is sub-contracted to the Chinese who required 4 years to complete. Jaks was offered Rm 454 million during the construction. The project will be completed in about 1.5 years’ time.
Unfortunately, Jaks’s property development business is losing money. The biggest culprit is the development of the Star’s 6 acres of prime land in KL. Jaks bought the land from Star in exchange for building a Star Tower. Since Jaks did not pay any money for the land, Jaks gave a Rm 50 million performance bond. From my long experience in property development, I thought Jaks was very clever in buying the land without paying any cash.
When I first started property development in early 1960, I did not have much capital. I always tried to look for land owners who would accept a deal like what Jaks’s deal with Star.
I have coined the phrase “use a silk string to tie up a big fat bull”.
Fortunately, during that time there were very few property developers. My partner and college mate, Dato Yap Lim Sen and I took advantage of the situation to make huge amount of money. For example, when we had 200 houses for sale in Ipoh Garden, there would be 2,000 buyers. We had to get the Perak Mentri Bersa to draw lots to select the potential buyers. Our profit was no longer based on margin percentage. We priced the houses on the amount buyers would be willing to pay.
That was how we founded IGB and IJM Corporation Bhd.
In Jaks case, Jaks got planning approval to build 2 high rise tower office blocks in front and 3 high rise condominium blocks at the back. The whole project when completed must worth a few hundred million Ringgit. The completion of the construction is delayed due to cash flow and the depressed property prices. Due to the delay, Star wanted to forfeit the Rm 50 million bond. 2 days ago, the court ruled in Star’s favour. As a result, the share price plunged.
The above price chart shows the price has been dropping from Rm 1.83 in mid Feburary to current level, a drop of about 30% within 6 months. As a result, all shareholders are losing money. Unfortunately, many shareholders are having margin call and forced to sell. All bankers must remember, forced selling is a vicious cycle. The forced selling will depress the price lower and resulting more forced selling.
Questions:
Have you lost faith in Jaks?
Is it still worthwhile to buy at this cheap sale?
If you do not have margin call, do you want to sell?