How I bought Jaks ?
I have decided to write this as an article so that newcomers are aware of my thought and position.
Let me take this opportunity to explain my journey in Jaks thus far.
Jaks transformed from a pipe maker to property developer and is now transforming into an IPP player. Jaks has no prior experience in IPP business and wasn't quite successful with its businesses in the past.
Thanks to Mr koon, Jaks came to my attention. I was an auditor and I have a good sense toward figures. I thought I could easily establish a strong case for Jaks. However, I then realised there isn't much references and guidance from the management except 12% IRR and 8 years payback period.
I searched for research reports from IBs and found no analysis on the potential of its IPP business. Based on preliminary assessment, I insisted that Jaks will have huge hidden potential waiting to be unearthed. So, I began digging for gold. I bought some at 1.40 when Mr Koon was around and the price later fell to RM0.40 due to forced selling by Mr koon.
I knew it would be a mountain task trying to forecast with high degree of accuracy the free cash flow of JHDP for 25 years. The result would only be as accurate as the assumptions. However, RM0.40 offered me a huge margin of safety. At that point in time, I told myself to ignore how much I could gain from RM0.40 but think about how much I could lose buying at RM0.40. The only reason I thought I could lose is if the plant is not completed. So, I started to accumulate aggressively on Jaks to lower my average cost to about RM0.70, and until 90% of my portfolio. That wasn't an investment decision but a business decision where the odds of success is more important than margin of returns.
After Mr koon sold, he stamped the hopeless mark on Jaks and Jaks did not recovered for few months. I thought Jaks was probably the most misunderstood stock in Bursa as far as the potential of the power plant is concerned. So, I tasked myself to inform the i3 readers of the true potential of the power plant. I thought by creating more awareness would bring back its price. No immediate success was seen.
After the announcement of RSP, free shares to executives, I realised the reason for keeping the price low is to benefit both the company and the recipients. I told readers that the price would surge after the vesting date of the RSP, and it did. That was my most accurate call so far.
I began by sharing basic information on the power plant and later carried out analysis using various different valuation methods as and when I found new information enabling the application of respective valuation methodology. My idea was to analyse the potential earnings from as many perspective as possible for mutual confirmation to gain greater self confidence. I didn't expect this effort to be regarded as excessive promotion. I also wrote some articles on the risk aspects of the power plant investment to balance readers' mood.
I looked back at all my articles and said to myself "How many people can really understand these analyses?". Some of my friends could only understand 50% after face to face explanation, the rests gave up.
I noticed that China Southern Power Grid Corporation which owns 55% of Vinh Tan 1 gave abbreviated earnings results of its Vinh Tan 1 subsidiary in its 2018 annual report. I knew the high resemblance between Vinh Tan 1 and JHDP would make a reliable and convincing relative valuation case for JHDP. So, I promised a better article.
On 30th April 2020, Vinh Tan 1 results was announced and the results met my expectation. So, I immediately wrote the article "Jaks Resources - The Most Reliable Earnings Guidance for JHDP" on 1st May 2020 to timely inform my readers. The article was an immediate hit drawing a much larger number of visitors compared to my previous articles.
I fully understand that Vinh Tan 1 and JHDP are not identical. There are differences in technologies even though both are chinese origin. However, they have very high similarity in most other aspects including project cost, BOT, PPA,CSA, debt capital, Government guarantee, etc. JHDP secured its deal about a year earlier than Vinh Tan 1. The most obvious difference is that Vinh Tan 1 chose Supercritical design and JHDP chose modified subcritical design. OTB was informed that JHDP has a superior design. Anyway, this is not the subject of this writing.
Everyone must realise that relative valuation is not identical valuation. It is currently the most realistic valuation method for JHDP given the lack of information to carry out other valuation methodologies. Without reliable data, other valuation methods are far more debatable than relative valuation.
How I bought Jaks ? Margin of safety is my primary tool. When the safety of margin is big, I focused more on the construction risk. When the price is higher and the plant is more than 90% completed, I will focus more the risk-reward aspect. In short, buying jaks is a business decision rather than investment decision at the earlier stages. When the power plant is completed, it shall be an investment decision base on the results and distribution policy of Jaks.
My purpose here is to share my knowledge. I do not know your finances and your risk tolerance. I do not advice the use of margin financing but I recently informed everyone that I was going to buy with margin. That was an ill advice and it was because I could not resist the urge to buy more at RM0.70 knowing that the plant will soon commission one of its units. Only 10% of my position is on margin financing and the margin position will be cleared using trailing strategy.
Since I have started a long journey in Jaks with the readers in i3, I promise to inform when we have arrived at our destination or when we have to get down unexpectedly.
I appreciate the advice from Philip and I hope I have done it right.
Thank YOU.
DK66
Please give me a "LIKE" if you think I have done the right thing.
https://klse.i3investor.com/blogs/Jaks%20resources/2020-05-11-story-h1506974684-Jaks_Resources_How_I_bought_Jaks.jsp
