I read Mr Ooi Teik Bee’s buy recommendation on Jaks. With due respect to him, I am writing this article with honest intention. I have no reason to break Mr Ooi’s rice bowl. Nevertheless, I hate to see investors being misled and lose money eventually.
I am ashamed to admit that I have lost a huge amount of money because I bought Jaks in anticipation of its profit from its power plant project in Vietnam. I hate to see investors make the same mistake as I made before.
JAKS is basically a construction contractor and a property developer. From the Company Registrar, you can check that Jaks is registered under construction and property development. It owns the Evolve Shopping Mall and the condominiums. It is currently developing the 6 acres of land owned by Star Media. Since Jaks did not pay for the land, it provided a Rm 50 million performance bank guarantee. Since Jaks could not complete the project for several years, the High Court has allowed Star to forfeit the Rm 50 million performance guarantee.
The Star project consists of 2 office tower blocks in front and 3 high rise condominium at the back. All these high-rise buildings are sitting on a 4-storey under- ground car park. One of the 2 office blocks is built for Star in exchange for the land cost. Even if Jaks can manage to borrow more money to complete the project, it will have great difficulties to sell all the offices and condominiums. Investors must remember that bank interest charges can be capitalised as part of the development cost and you cannot see it in its current quarterly report.
I remember the CEO, Andy Ang owned 49% or 51 % in joint venture with Jaks in the Star project. I doubt Andy can borrow so much money to maintain his share of the Joint Venture. Did he sell his share to Jaks? Investors must ask this very important question.
I have been a co-founder of IJM Corporation Bhd and a few other listed companies involved in property development, I have never seen so many unsold properties in my life. No one knows when this property glut problem can be resolved. Property prices will continue to drop for many more years to come. Now many property developers are already in liquidation or in bankruptcies because the banks are recalling back the loans. Moreover, the banks have increased the buyers’ down payment from 10% to 30 %. As a result, property developers cannot sell their products.
Currently Jaks is reporting its profit from its sale of 70% of power plant contract to a Chinese party which may looks very attractive. Unless its projected profit from its 30% interest of the power plant project when completed can cover the losses from its property development business, it is not safe to buy Jaks because its profit growth prospect is very bleak.
https://klse.i3investor.com/blogs/koonyewyinblog/2020-02-09-story-h1483734882-JAKS_future_is_hopeless_Koon_Yew_Yin.jsp
