Jaks Resources in 2019
2018 has been a dramatic year for Jaks witnessing Its share price to fall from 1.84 to 0.40 in light of the following occurrences;
What has happened so far in 2019 ?
Payment of RM50m bank guarantee to The Star
"Reference is made to the Company’s announcement on 7 January 2019 and the Board of Directors of the Company wishes to inform that after the dismissal by the Federal Court of JAKS Island Circle Sdn Bhd (“JIC”)’s application and after consultation with its legal advisors, JIC has released the payment on the bank guarantee of RM50.0 million to STAR on 9 January 2019. As JRB has 51% equity interest in JIC, RM25.5 million will be charged off in the financial statements of JRB Group for the quarter ended 31 December 2018."
This RM25.5m losses has caused RM12.5m Net loss in Jaks' Q4 2018 results. Without which would have been a net profit of RM13m.
Grant of RSP (Free new shares given to employees)
"On 30 January 2019, the Company announced the award of 38,709,760 ordinary shares (“LTIP shares”) under the Restricted Share Plan (“RSP”) to selected employees / executives of the Company."
Please refer to my previous article "Jaks Resources - My opinion" to understand the rationale.
https://klse.i3investor.com/blogs/Jaks%20resources/192780.jsp
Grant of RSP will result in a charge of RM19.7m to the P/L in Q1 2019 results
What else might happen in 2019 ?
Apart from the unknown and unexpected, the following events are likely to unfold in 2019
Major progress in Vietnam Hai Duong power plant EPC works
Photo taken in Dec 2018. The Star Tower has been completed waiting for approval from authority.
What could happen after the handover of The Star Tower to The Star?
Jaks Resources Bhd’s total costs and disputed claim against Star Media Group Bhd would be much higher than the RM50 million bank guarantee called by Star Media, based on its preliminary estimate.
https://www.thesundaily.my/archive/jaks-resources-claims-against-star-media-will-total-more-rm50-million-BUARCH533065
Affin Hwang noted that JAKS is liable for the liquidated ascertained damages (LAD) for Tower A of the Pacific Star project, which the research firm estimates to be RM30 million based on the sale and purchase agreement (SPA) signed between JAKS and Star in August 2011 for the purchase of land for RM135 million and assuming that JAKS can complete the building before end-June.
https://www.theedgemarkets.com/article/jaks-resources-could-lose-rm50m-dispute-star
Therefore, potential billings on variation order works on The Star Tower in excess of RM50m as well as partial write back of bank guarantee losses are on the pipeline for surprise earnings upside.
Completion of Pacific Star Project
Pacific Star is an elite mixed development project which is located in Section 13, Petaling Jaya, developed by Island Circle Development. This up and coming green building leasehold development consists of 5 blocks for residential units and commercial space purposes.
Star Publications has exclusive rights to Tower A, while Tower B, also an office suites, has 258 units to be released to the public. Tower C on the other hand consist of 191 units of semi-D like homes with build up area between 988 - 1242 sq ft. Tower D consist of 180 units of serviced apartments located on the 10th to 24th floor. This particular tower has units with 1 or 2 rooms, whereby each floor contains 12 units. Meanwhile, Tower E consists of 286 units sprawled over the 10th to 33rd floor, with 1 or 2 rooms options.
The built-up for Tower D and E of Pacific Star ranges between 617 sf and 802 sf. There are 4 levels of basement car parks, 4 levels of retail units and 5 levels of elevated car parks. Both Tower A and B have sold out. Launch price was around RM700 psf.
Andy Ang Lam Poah has, in a recent interview with The Edge, mentioned that the entire Pacific Star project will be completed in June 2019 and will not engage in property development in near future.
2018 has been a dramatic year for Jaks witnessing Its share price to fall from 1.84 to 0.40 in light of the following occurrences;
- The exit of a major shareholder
- Performance dispute with The Star resulting in a payment of RM50m Bank Guarantees
- A 10% private placement at RM1.38
- An undersubscribed warrant rights issue with only 37.5% subscription rate
What has happened so far in 2019 ?
Payment of RM50m bank guarantee to The Star
"Reference is made to the Company’s announcement on 7 January 2019 and the Board of Directors of the Company wishes to inform that after the dismissal by the Federal Court of JAKS Island Circle Sdn Bhd (“JIC”)’s application and after consultation with its legal advisors, JIC has released the payment on the bank guarantee of RM50.0 million to STAR on 9 January 2019. As JRB has 51% equity interest in JIC, RM25.5 million will be charged off in the financial statements of JRB Group for the quarter ended 31 December 2018."
This RM25.5m losses has caused RM12.5m Net loss in Jaks' Q4 2018 results. Without which would have been a net profit of RM13m.
Grant of RSP (Free new shares given to employees)
"On 30 January 2019, the Company announced the award of 38,709,760 ordinary shares (“LTIP shares”) under the Restricted Share Plan (“RSP”) to selected employees / executives of the Company."
Please refer to my previous article "Jaks Resources - My opinion" to understand the rationale.
https://klse.i3investor.com/blogs/Jaks%20resources/192780.jsp
Grant of RSP will result in a charge of RM19.7m to the P/L in Q1 2019 results
What else might happen in 2019 ?
Apart from the unknown and unexpected, the following events are likely to unfold in 2019
- Major progress billings in its Vietnam EPC works
- Handover of The Star Tower
- Completion of Pacific Star
Major progress in Vietnam Hai Duong power plant EPC works
On Track for Completion by 2020
"Management
has indicated that the overall power plant is 46% completed, and their
EPC portion at 40%, hence they believe that the plant is on track to
meet COD by mid-2020 as per the PPA contract. We believe that Jaks would
recognise around RM1.08bn of revenue from the remainder of the EPC
contract in 2019 and 2020. The gap in the completion progress is due to
the main contractor focusing its effort in the main boiler units as the
machineries are already on site. Nevertheless, the contractors would
also need to complete Jaks EPC work order before they can test the
plant." - Affin Hwong Research
https://klse.i3investor.com/blogs/hwangdbs/196158.jsp
Jaks
has only recognised 40% completion as at Dec 2018. As major cost
components will be incurred in 2019 for the installation of machineries,
it is logical to assume 40% allocation for 2019 and 20% for 2020 in
term of progress billings.
Jaks
has picked up phase in progress billings. It has recognised 7.3% work
completion in Q4 2018. Therefore, 40% work done in 2019 is reasonable
given that the construction completion deadline for unit 1 is Feb 2020.
Similar power plant projects in vietnam were completed half a year ahead
of schedules e.g Mong Duong 2 and Vinh Tan 1 power plants.
Hence,
around RM720m revenue maybe recognised in 2019. Based on the 25% profit
margin on revenue recognised thus far for the EPC works, Jaks may
record RM180m profit from Vietnam EPC revenue in 2019.
Handover of The Star Tower to The Star
Photo taken in Dec 2018. The Star Tower has been completed waiting for approval from authority.
What could happen after the handover of The Star Tower to The Star?
Jaks Resources Bhd’s total costs and disputed claim against Star Media Group Bhd would be much higher than the RM50 million bank guarantee called by Star Media, based on its preliminary estimate.
https://www.thesundaily.my/archive/jaks-resources-claims-against-star-media-will-total-more-rm50-million-BUARCH533065
Affin Hwang noted that JAKS is liable for the liquidated ascertained damages (LAD) for Tower A of the Pacific Star project, which the research firm estimates to be RM30 million based on the sale and purchase agreement (SPA) signed between JAKS and Star in August 2011 for the purchase of land for RM135 million and assuming that JAKS can complete the building before end-June.
https://www.theedgemarkets.com/article/jaks-resources-could-lose-rm50m-dispute-star
Therefore, potential billings on variation order works on The Star Tower in excess of RM50m as well as partial write back of bank guarantee losses are on the pipeline for surprise earnings upside.
Completion of Pacific Star Project
Pacific Star is an elite mixed development project which is located in Section 13, Petaling Jaya, developed by Island Circle Development. This up and coming green building leasehold development consists of 5 blocks for residential units and commercial space purposes.
Star Publications has exclusive rights to Tower A, while Tower B, also an office suites, has 258 units to be released to the public. Tower C on the other hand consist of 191 units of semi-D like homes with build up area between 988 - 1242 sq ft. Tower D consist of 180 units of serviced apartments located on the 10th to 24th floor. This particular tower has units with 1 or 2 rooms, whereby each floor contains 12 units. Meanwhile, Tower E consists of 286 units sprawled over the 10th to 33rd floor, with 1 or 2 rooms options.
The built-up for Tower D and E of Pacific Star ranges between 617 sf and 802 sf. There are 4 levels of basement car parks, 4 levels of retail units and 5 levels of elevated car parks. Both Tower A and B have sold out. Launch price was around RM700 psf.
Andy Ang Lam Poah has, in a recent interview with The Edge, mentioned that the entire Pacific Star project will be completed in June 2019 and will not engage in property development in near future.
Public
Investment in its latest research report noted that unbilled sales for
its property division as at 4QFY18 stood at RM154m, mainly from the
Pacific Star development
https://klse.i3investor.com/blogs/PublicInvest/195884.jsp
What could happen after the completion of the Pacific Star project?
- it will put an end to liquidated ascertained damages (LAD) which is about RM2m to RM3m monthly
- It could realise all the unbilled sales (RM154m as at Dec 2018) and improves its cash flow positions.
- Once fully completed, it is in better position to sell its remaining unsold units.
Conclusion:
Jaks Resources in 2019 will be a
turnaround year after seeing its worst in 2018 clouded by delays,
disputes, cash calls and slow progress. Its Vietnam EPC will record
major achievement in progress billings and record profits.
Jaks at RM0.70 is still historically low.
It is highly likely that it is poised for a major price uptrend.
However, do note that NOTHING IS RISK FREE.
https://klse.i3investor.com/blogs/Jaks%20resources/196652.jsp
https://klse.i3investor.com/blogs/Jaks%20resources/196652.jsp
