JAKS: Towards Better Horizons

Is this counter worth a second look?

Let us see what is next in store for JAKS.

JAKS will put out a private placement of 10% of its shares to interested parties within a year. The 48,219,717 shares to be issues will come with a warrant each. The exchange rate of the warrants will be determined by the volume weighted average price of 5 days for a selected period and is exchangeable for JAKS shares on a 1:1 basis. The allowable period for the conversion exercise of the warrants is 5 years. The maximum discount off JAKS share price for the conversion,if at all, will not be less than 10%

JAKS can expect a maximum of RM48.2 million to flow into its coffers from this exercise. The application of funds will be as follows:

a) RM20 million for working capital. It will be utilized in the first 12 months

This will be channeled to business operations,administration and operating expenses

b) RM27.2 mil for business expansion and other investments

This amount will be directed towards the development of the thermal power plant in Vietnam on a built-operate-transfer mode.

c) RM 1.0 as expenses for the private placement

The revenue to be earned from the warrant conversion exercise will be kept for use for new investment.

Assuming the ESOS exercise is fully taken up and the placement meets maximum success, the share structure distribution will be as follows:

ESOS: 7.58%.

Private placement: 8.33%

Warrants Conversion: 8.33%

The current borrowings of JAKS is RM127.065 million.

The gearing for JAKS will improve from 0.27 currently to 0.21 when the whole ESOS exercise, private placement and warrant conversion gets off the ground.

The retained profits which is currently RM8.369 million will rise to RM9.601 after the full exercise.

Net earnings will drop proportionately to the new issuance of shares.However, this private placement will positive contribute to group earnings through fund utilization of working capital , business expansion,the settlement of bank borrowings and other potential investments.

The lowest price of JAKS was 31 sen and the highest is RM1.08. the going price today which is a really bad market day is 76 sen.

JAKS has been involved from the outset in the water industry. It manufactures mild steel pipes and trades them as well as steel hollow sections. It had a setback in Selangor where there was a contractual breach of a supply contract. This causes the fortunes of JAKS to wane. A legal action is mounted by JAKS against the parties concerned which includes PUAS,SYABAS and the Selangor government. The legal action is under case management.

So not as to be stuck to the old water sector which has become too crowded, JAKS has proposed to lead a consortium to build-operate-transfer a 2X600MW coal fired plants in Hai Duong province in North Vietnam, Negotiations are actively pursued on power purchase agreements and other related ones. JAKS expects all this to be 'in the bag' by 2010.

Demand for power is high in Vietnam which is expected to grow at 15% annually.
Current domestic power generation is insufficient.

JAKS is currently undergoing a corporate debt restructuring scheme announced on 19 October 2009 and has yet to implement the ESOS.

With the potential takeover of the water management of Selangor by the Federal authority,plans could be afoot by Kumpulan Perangsang Selangor (KPS) to ensure that they acquire some of the major packages from the Pahang-Selangor Water Transfer project. KPS owns some interest in JAKS.

So, do you think this is the right price to enter the market for JAKS at 76 sen?