JAKS (4723) - Jaks: Is Santa Claus coming to town? kcchongnz


 I read a top article in i3investor just now, on “Why Jaks?”, in the link below,

https://klse.i3investor.com/blogs/godsonkyy/176074.jsp

Again, it never fails to amaze me on the grossly misleading statements below.

First it says,

“The 3 Chinese National Banks must have studied the power purchase agreement before they are prepared to finance Rm 7.76 billion for the project.

It is like the Chinese Banks is giving a profit guarantee to all the Jaks shareholders every year for 25 years when the JV sells electricity to the Vietnamese Government.”



Wow, some profit guarantee from banks for 25 years! That was fantastic, incredible, unimaginable. What a great “Santa Claus” deal was that!

I have been in the construction industry for many years in the contracting environment. We have utility privatization project too such as that of the water supply project in Johore. We too got financing arrangement with a large bank here, Maybank, which lent us millions Ringgit for the project. But never in our mind that our profit was guaranteed by Maybank, just because it lent us money. We had to work our ass out to ensure the project was carried out successfully, and rewarded with the recurring income once the water project was completed. Maybank would be happy to get interest payment from their lending as well as eventually recouping their capital. That was the only thing Maybank was concerned about.

The bank lends out money for project financing. What do they concern about lending out this money? To guarantee profit for the shareholders of the lender?

Of course not! Their concern is to get interest payments from the project operators, and make sure that the lending came with collateral, or the projected cash flows from the project is adequate for the payment of interest and the repayment of their capital eventually. They would make sure that their interest is paid first before shareholders getting any dividend. Where got guarantee your profit?

Where on earth got such bankers who are so stupid to guarantee your profit, and for every year and for 25 years? Santa Claus ah?



The next misleading statement was,

“During the construction, the Chinese JV partners pay Rm 454 million to Jaks and this sum of money is to be used as capital for owning 30% of the Joint venture. Moreover, the Chinese would undertake the construction and Jaks is not even required to lay a brick.

I wish to point out that Jaks will own 30% of the Joint Venture free of charge.”

The comment below makes sense,

[Posted by sense maker > Sep 30, 2018 02:23 PM | Report Abuse https://cdn1.i3investor.com/cm/icon/trans16.gif

Jaks need to do nothing but will take away 30% stake in the power plant and its recurring profits for 25 years. Sounds too good to b true.]

No need to come out with any money and no need to do anything and eventually own 30% stake in a 1200 MW power plant with huge recurring cash flows. It is a big fat frog jumping around. All costs are paid and absorbed by the generous Chinese.

Many of my friends doing business in China told me that negotiating with the Chinese in business is very tough. They would squeeze you dry, especially when they are in upper hand in any agreement.



Lastly this statement,

“I think it is a very good share to buy bearing in mind that its NTA is about Rm 2.20 per share without any valuation of the 30% of the 1,200 Mw power plant.”

Just wondering why would a big major shareholder so stupid and sold down 72 million shares at cheap sale below RM1.00, when his cost is above RM1.50, for a loss of more than RM36m?

How on earth he gets the NTA of Jaks is RM2.20? What is his “NTA”?

How is that the above valuation even did not consider of the value in the power plant when there is an item on “Investment in JV” in the balance sheet of Jaks?

Is NTA of Jaks relevant in the investment thesis of Jaks? Is the “Golden Rule” of increasing profit during the construction stage where money is placed from the right pocket to the left pocket, relevant?



Actually, to me, the most important information for investing in Jaks is the future cash flows attributed to Jaks in the Vietnam power plant project when it is in operation, and how much is translated to the cash flows per share in the future, after taking into all the future dilutions of shares of Jaks.

What are the estimated future annual free cash flows for Jaks after the completion of the power plant, and discount them back to the present? From this, then we can make an assessment if Jaks is worth investing. There must be adequate margin of safety (MOS) in view that there are substantial debt holding claiming this future cash flows too.



If that future cash flows are large and with adequate MOS, of course Jaks is worth investing. But be aware of the risks involved too as described here,

https://klse.i3investor.com/blogs/kcchongnz/123266.jsp

The management should be able to shed some light and be transparent about it.

Without that information, we may be able to try to estimate the future cash flows based on information such as project cost, project IRR, capital structure etc. But that could only be a rough estimation.

Otherwise, buying Jaks is only a speculative endeavour. Of course it doesn’t mean speculating in the stock market can’t make money. But it doesn’t mean one won’t lose money too. We have seen people losing huge amount of money in Jaks in the last few months, haven’t we?

No, I am not saying Jaks is not a good candidate as a speculation. I also did not say it is not a good investment.

https://klse.i3investor.com/blogs/kcchongnz/176384.jsp