JAKS: What investors must verify

In my last article “Recommend stocks to me” I said that I only have Dayang, Carimin and Uzma. All of them have shot up in the last few months. In fact, Dayang has shot up from 90 sen to close at Rm 1.80, a 100% gain in 3.5 months. Hong Leong and Kenanga have recommended Dayang with a target price of Rm 2.00 in view of its good 3rdquarter result which will be announced before end of November. As a result of the rapid price increase, I have a lot of buying facilities. I would like readers to recommend some shares for me to buy and they must comply with my golden rule for share selection. 

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More than 50 investors recommended about 60 stocks. But sad to say that I will not buy almost all the recommended stocks. Although I appreciate their effort, I have to advise them to examine their track record to see why they have not been able to make money. 

Since Mr Ooi Teik Bee has recommended Jaks to all his hundreds of subscribers, the price is going up. 

My intention in writing this piece is to advise investors not to repeat the same mistake as I did before. I bought Jaks in anticipation of its future profit from its electricity power generation in Vietnam. Jaks is basically a property developer and like all property developers, Jaks has a lot of unsold properties. Just open your eyes you can see there are a lot of unsold properties in every town and city in Malaysia. That is why so many shares of property developing companies are sell below their NTA. It will take many years to resolve this over supply problem. 

Jaks also has a coal power plant contract to generate electricity to sell to the Vietnamese Government. Jaks has sold 70% of the contract to a Chinese Company for Rm 440 million which is to be paid during the power plant construction. Jaks is now reporting profit from this Rm 440 million which has attracted so many investors. From my experience in power plant construction, even after the power plant construction is completed, it will take more than 1 years to test run the huge muti- billion $ system.  

According to its 2ndquarter accounts, it reported the following which investors must verify:

1, Rm 148 million for good will. Who has taken this money? 

2, Rm 642 million in investment properties.

3, Rm 280 million in Joint Venture

4, Rm 318 million long term long.

5, Rm 82 million current bank loan.

6, Rm 935 million trade and other payable. 

7, Rm 82 million cash at the beginning of the period and Rm30 million end of the period.

Investors must also verify the following:

1, Jaks and its CEO Andy Ang are in JV to develop the Star Media land. It is one of the largest property developments in KL. It consists of 2 office tower blocks in front and 3 high rise condominium at the back. All these are sitting on a 4 storey underground car parks. Due to late construction completion, Star has forfeited the Rm 50 million performance bank guarantee and the High Court has passed judgement. Jaks is now trying to put an injunction to delay the payment of the Rm 50 million. The case has gone to Appeal Court. 

Investors must find out if CEO Andy Ang has sold his personal share in the joint venture to Jaks. Since he is controlling the company, he can make Jaks to buy his share without an EGM to seek the approval of shareholders. 

Now Star and other buyers are demanding compensation for late completion under the Housing Ordinance. This will drag on for a long time until the project is completed. Even when Star Media project is completed, Jaks will have great difficulties to sell all the properties.  

Investors must also find out how is the sale or rental of Jaks’ shopping mall. 

Investors cannot see the amount of payment for interest charges for bank loan for the construction of the Star Media land because according to accounting rules, payment of interest can be capitalized.

It is better for investors to focus on Jaks’ current problem in its property development business which will drag on for many years than to focus on the future profit from its power generation business. Investors must never buy any stock in anticipation of its future profit.          

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