Best Opportunity Missed in Mac20-May20: What The Hell Were In My Mind?

Finally, year 2020 comes to an end. 

Everyone in the world will remember it as a pandemic year. What have you learnt from this turbulent year?

To me, I'm grateful that so far I have not been negatively affected by this pandemic. My family and I are still in one piece and I still have my job.

Malaysia implemented its nationwide lockdown (MCO) on 18th Mac 2020. Surely it was a new experience for all Malaysians.

I still need to travel to work though, and I like the feeling of driving on roads without other vehicles.

At the same time, we had a scary stock market and oil price crash on top of the back door government change.

What have I done and what was in my mind at that time?

Case Study: Property Investment No.5

My last property purchase was back in April 2012, which was more than 8 years ago.

My in-laws used to stay in relative's house. When that house was sold, they were forced to rent a house.

Instead of paying rentals every month, I thought it's better to get a house and pay the loan. 

So I decided to buy a house in the same area of my house for them.

At that time, developer was planning to build apartment priced above RM230k there, and 8-year-old landed freehold single storey terrace houses there were asking for around RM130k.

My instinct told me to grab one before it's too late.

Master: Can History Repeat Itself?

 

After plastic packaging, furniture and EMS sector, recently another manufacturing segment seems to gain more attention.

It is corrugated carton box packaging.

KLSE listed stocks in this industry include Master-Pack, PPHB, Ornapaper, KYM, Muda & Boxpax. 

D'nonce is also involved in corrugated carton box manufacturing but it also has other paper & plastic packaging products.

The share price of D'nonce has gained handsomely since early Aug20 due to its supply to medical gloves companies. It doesn't seem to respond much recently may be because it follows the gloves trend more.

Anyway, the upcoming quarterly result of D'nonce to be announced later this month is worth to keep an eye on.

Is the carton box theme coming back since staging a rally in 2019?

My Portfolio Nov20

Summary for November 2020

Portfolio @ End of Nov20

November 2020 is an unbelievable month for me. My overall portfolio gains 30% in a month which is a record high.

I have never had such result in my entire investment journey though it might be common for some readers especially those with only one or two stocks in their portfolio. 

My previous record monthly positive gain was 20% in April this year when all stocks staged a V-shape rebound from rock bottom.

The main reasons for this record monthly gain is none other than SCIB, JAKS and KPOWER.

Will Negative Comments Drive You Crazy?

If you frequent public forums and social media platforms associated with stock market, surely you'll see negative comments on almost all the stocks.

Some negative comments make sense but I'd say most do not. 

Some people like to create fear and anger in other people and they might have a sense of satisfaction in doing so.

So it's not uncommon to see heated exchange in public forums and social medias.

How should you react to this?

POS Turnaround? Sure or Not?

A few years back, courier business especially last-mile delivery was identified as a sunrise business with explosive growth potential due to e-commerce boom.

Now, we realize that the competition in courier business is ferocious and bloody, and its earning growth potential seems to be not that attractive anymore.

Like many other investors, I did consider to invest in courier stocks before. 

GDex is perhaps the best listed courier company but its PE ratio was, and is still extremely high.

POS is the largest courier company in the country but it has a sunset mail business which will drag down its courier profit. 

Nationwide looks hopeless and I have nothing much to say about it.

CJ Century was my only hope as it just started its courier service business in early 2018. However, after 3 years it's still suffering in loss and seems difficult to turnaround anytime soon.

What Are Holding Back The Gloves?

Can I still buy Supermax? Should I hold Harta? Careplus has dropped a lot, is it a chance to accumulate? Should I average down on Rubberex? Should I sell Topglove now? Is it a good time to take profit on Kossan? Can I average up on Comfort? How about AT?

There is no doubt that gloves stocks are the hottest stocks in Malaysia stock market since Covid-19 pandemic.

Certain investors will tell you that it's stupid not to buy gloves stocks now, as gloves companies are the only companies that are guaranteed to make gigantic and increasing profits in the near future. 

The advice given is that you must ONLY have gloves stocks in your portfolio.

In early part of Covid-19 pandemic, I think no one would expect Supermax who usually earns around RM30mil net profit a quarter to be able to raise it substantially to RM800mil a quarter.

At this point of time, it's no secret anymore regarding how much glove companies can earn in this pandemic, everybody knows it from their excellent financial reports & forecasts. 

There is also no doubt that gloves companies will continue to make huge profit in the coming few years.

However, it is a different story how the market will value them in term of share price.

How To Subscribe To Rights Issues Online

I used to subscribe to Inari rights issues before in 2015. At that time I used a nominee account. So my broker helped me to do everything and I just needed to ensure that I had enough money in my account to pay for the rights shares.

Now I mostly use direct trading account. That means there is no one to help me and I have to do it all by myself.

As it's my first time subscribing for rights shares on my own (current Jaks rights issue), I contacted the investment bank and they were kind enough to give me the instruction on what I should do.

First, I have to wait for the rights shares subscription form which will be sent to my house's mail box. I have to fill up the form and then go to bank to get a banker cheque as payment. 

After that I have to go to post office to buy a RM10 setem hasil and paste it on the form. Finally I have to mail the form and banker cheque back via pos laju or other courier service. 

Travelling to 2 places (bank & post office) and queuing up during this very moment is both time-wasting and risky.

My Portfolio Oct20

 Summary for October 2020

Portfolio @ End of Oct20

This October was not a good month for stock market as KLCI retreated 2.5%. Overall my portfolio registers a small gain of 1.2%, thanks to Prolexus, Scientex & Supermax.

I did not have any intention to buy stocks in October as I planned to wait until after the US election to have a clearer picture. 

However, I added my position in Jaks a trading day before the ex-date of its rights issue. I didn't sell any shares since none reaches my target price.

I always have a plan in mind to top up Jaks either before or after the rights issue. I regretted that I missed the chance to do so when its share price was below 80sen not too long ago. 

Important Dates of Corporate Exercises

When investing in stock market, inevitably we will come across dividends, bonus issue, rights issue etc.

Companies will announce such exercises through Bursa announcement and it usually contains a few dates. These dates can be confusing especially for beginners.

Lets study these dates with real examples.

Should You Invest In Unit Trust?

After I started my working life, my first investment was unit trust.

Unit trust or mutual fund is a pool of money collected from individual investors and managed by fund managers, who invest the fund in various investment vehicles either locally or/and abroad.

I didn't have any idea regarding financial planning and investment until I graduated from university in 2004.

While waiting for employment, I read a book "Financial Freedom" published by Public Mutual (formerly KL Mutual) and there was no surprise that I bought unit trust first.

There was also no surprise that my first unit trust was bought from Public Mutual.

Property vs Stock Market Investment

There is no doubt that property and stock market are the two most popular investment not only in Malaysia, but all around the world.

Which one is a better investment?

A successful property investor will tell you that property investment is better and stock market is too risky.

A successful stock market investor will tell you that stock market is better and property is too slow.

When I started my investment journey, I started with unit trust and then stock market. The reason is simple, how can a person with a saving of RM7000 and monthly salary of slightly over RM2000 invest in property?

JAKS: The Beginning of A New Chapter

After a few changes, Jaks has finally fixed the entitlement basis of its rights issues with warrants.

Before this on 9th September 2020, Jaks released a circular to shareholders in relation to its rights issue and it seems like the management revised it again.

The "illustrative" rights share and warrant entitlement has changed to 3 rights shares for 1 ordinary share held, together with one "free" warrant for every 2 rights shares subscribed. 

The illustrative issue price for each rights share has been reduced further to 12sen from 22.5sen.

Such plan will see a substantial increase in Jaks outstanding shares from 0.65 billion up to 3.2 billion before the new warrant conversion, and 4.4 billion after full warrant conversion!

My Portfolio Sep20

Summary for September 2020

Portfolio @ End of Sep20

   

    

Finally I sold all my BAuto shares. This is another one which saw a 50% paper gain turning into 27% paper loss, almost the same fate as Hevea.

However, I still manage to register overall gain from these 2 investments, thanks to their high dividends.

When I bought BAuto in Oct15, it was for its growth potential, not its dividends. I predicted that Mazda could overtake Nissan as the third largest foreign passenger car brand in Malaysia.

Up to today, Mazda is still behind Nissan, although the gap has narrowed. Mazda's strategy to build a more premium brand image and keep a higher profit margin has hindered its progress to overtake Nissan.

Slowly BAuto has turned from a growth stock to a dividend stock. As I only want growth at this stage of my investment journey, I decided to sell since last year but only manage to sell now after its share price has dropped so much.

Prolexus: ProXmask To The Rescue

While Supermax's latest single quarter net profit in FY20Q4 was better than its previous 48 months results combined, Prolexus's latest single quarter net profit in FY20Q4 is about its previous 42 months combined.

And there's no significant one-off gain. Not bad indeed.

Simple reason given by the management: fabric mask.

Prolexus recorded revenue of RM97.9mil and PATAMI of RM23.9mil in its final quarter of FY20 ending in July. 

This is a record profit by a huge margin despite a lower revenue YoY. Its previous average quarterly PATAMI was around RM6-7mil during its good time. 

This means that its profit margin has improved tremendously.

The Legends: QL vs Scientex

What is the first thing that crosses your mind when someone mentions about QL?

1. A company that sells seafood
2. A company that sells chicken and eggs
3. A company that operates Family Mart
4. A company that grows its revenue and profit annually without fail for more than 10 years

I think most investors with a few years of experience in Malaysia stock market will choose no.4.

Yes, QL is a "legendary" stock in Malaysia which has registered annual revenue and net profit growth every year without fail for at least 17 years (my available data is from FY2003).

It is commonly used as a reference when people talk about fundamental long term investment, consistent growth story and good management team.

While QL is no doubt a great company, how about Scientex? 

Hibiscus: Sizable Private Placement of CRPS

On 9th September 2020, Hibiscus suspended its trading to make announcement of proposed private placement of new Convertible Redeemable Preference Shares (CRPS).

What is CRPS?

Preference shares are shares of a company issued with a fixed dividend payout. They are not like common shares which can dilute a company's earning and assets per share. 

Preference shares holders have the priority to be paid first in case the company is liquidated but they do not have voting rights compared to common shareholders.

Redeemable means that the company can redeem or buy back the preference shares in the future.

Convertible means that the preference shares can be converted into company's common shares before a specific date.

Private placement means that the shares are sold directly to private investors, not to the company existing shareholders.

Brief Notes on Top Glove

Top Glove is going to announce its highly-anticipated FY20Q4 tomorrow. Almost everyone expects at least triple jump in its net profit QoQ.

Its PATAMI in previous quarter was RM347.9mil. For the upcoming quarter, I read from various sources that it will be at least RM1.2 billion.

How will the market react to its result tomorrow?

When Is The Next Property Boom?

Property gurus say: "Property price will double every 10 years". Is it true?

My parent bought a house which cost RM40k back in 1983. If the theory is true, then in 1993 it will cost RM80k, 2003 RM160k, 2013 RM320k and 2023 RM640k.

I don't know at what price similar houses in that area were transacted in the past, but now I know it's worth around RM450k.

This 10-year property price theory looks good as it successfully predicted that after 2013 its valuation will be more than RM320k.

However, we only have 3 more years to reach 2023 and I don't think it can appreciate another RM200k to reach RM640k in such a short period of time.

Can Small Automation Companies Thrive?

Nowadays people are talking about Industrial Revolution 4.0 (IR 4.0), which is about smart factory with the integration of Internet of Thing, big data analytics, artificial intelligence, automation etc.

Manufacturing businesses will probably lose their competitiveness and be at risk of being eliminated if they do not go for this revolution.

Automation is one of the major component of IR 4.0. It is not a surprise to see that some of the stocks related to automation have posted decent growth in revenue and profit.

Their share price keep on increasing until a PE of more than 50.

Among those solid companies related to automation and robotics are Greatech, Pentamaster and MI. They are fundamentally sound and deserve to have their share price appreciation.

Favelle Favco, an undisputed king of cranes in Malaysia, also diversified into automation business mainly in the oil & gas field in 2018.

There are other smaller automation companies listed in Bursa Malaysia such as Genetec, iStone and AT Systematization.

My Portfolio Aug20

Summary For Aug 2020

Aug-20
Numbers of stocks	13
Share Sold	Matrix @ 1.74
Share Bought	Genetec @ 1.49
	Supermax @ 21.30
Overall 2020
Portfolio Return Aug20	13.41%
KLCI Return Aug20	-4.90%
Portfolio Return YTD20	28.34%
KLCI Return YTD20	-4.00%

Portfolio @ End of Aug20

Stocks	Avg	Jul20	Aug20	Div20	Aug20%	Overall%
BAUTO	1.92	1.41	1.36	4.2	-3.5	-29.2
DAYA	0.035	0.015	0.020		33.3	-42.9
GENETEC	1.49		1.520			2.1
HIBISCUS	1.05	0.60	0.595		-0.8	-43.3
JAKS	0.88	0.77	0.76		-1.3	-14.2
JHM	1.33	1.52	1.69		11.2	27.1
KPOWER	2.03	2.60	3.27		25.8	61.5
KRONO	0.76	0.570	0.600		5.3	-21.0
LEONFB	0.505	0.305	0.315		3.3	-37.6
PRLEXUS	1.15	0.64	0.685		7.0	-40.4
SCIB	2.06	2.83	3.42		20.8	66.0
SCIENTEX	2.735	9.10	9.40	10.0	3.3	243.7
SUPERMAX	21.3		22.14			3.9

In August, finally I sold all my Matrix shares after holding them for almost 7 years. The gain of 76%, or average 11% per annum is not too bad.

Matrix is the stock that I always want to sell but also reluctant to sell. I might decide to sell tonight but the next day I change my mind. This scenario repeated multiple times.

There is another stock more or less like this and it's Scientex. At this point of time I plan to keep it for long term until a drastic change to its fundamental.

I added Genetec and Supermax in August. The strategy in Genetec is similar to Geshen, a loss-making company which has a potential to turnaround. 

SCIB: Bonus Towards Billion Market Cap

 

A day after I wrote that SCIB does not have the ability to do bonus issue, the company proposed bonus issue and free warrants.

I thought bonus issue can only be done by capitalization of retained earning of a company, but now it seems like it can still be done without it.

SCIB has no retained earning with only accumulated losses before this. Now it has proposed bonus issue of 3 bonus shares for 1 existing share, with 1 free warrants for every 2 shares held after the bonus issue.

So that means if you have 1 SCIB share now, after the exercise you will have 4 SCIB shares and 2 SCIB warrants.

Its outstanding shares will go up from 122.6mil to 490.5mil shares, and there will be about 245mil warrants which have a tenure of 3 years.

SCIB: SERBADK 2.0?

About the same time when acquiring KPower shares, Datuk Abdul Karim of Serba Dinamik emerged as a controlling shareholder of Sarawak Consolidated Industries Berhad (SCIB).

SCIB's share price responded by surging from around 60sen in May19 to RM3.50 in Feb20. Covid-19 bear market dragged it down to RM1 and currently it recovers to RM3 level.

Before the change in major shareholders, SCIB was a struggling loss-making company.

Similar to KPower, I didn't have interest in this kind of loss-making company when the visibility of earning is in doubt.

However, studying KPower in late May20 inevitably brought me to SCIB, and I found that SCIB is an even more exciting company.

Am I A True Value Investor?

The answer is NO. 

Why I say so? Just look at my past completed trades since 2013 in "History" page, will any true value investors invest in companies like Geshen, HHGroup, Jadi, Asiapac, Daya, Complete, Notion & Adventa?

I read and heard from other teachers that in fundamental investment, one should invest in well-established, industry leading type of companies with competitive edge or margin of safety.

In my previous investment portfolio, you won't see any big cap companies and blue chips.

Value investors usually won't invest in loss-making companies with no presentable track records but I still put my money in them.

Super Superb Supermax

For 4 full calendar years from 1st Jan 2016 to 31st Dec 2019, Supermax's TOTAL net profit attributable to shareholders (PATAMI) was RM382mil.

Now, in a single quarter of FY20Q4, it achieves a PATAMI of RM399.6mil which is even higher than previous 4 calendar years combined.

In other words, this 3-months result exceeds previous 48-months results. This is simply mind-boggling and I've never seen anything like that.

Large Scale Solar (LSS): What To Expect

Malaysia targets at least 20% renewable energy consumption by year 2025. Large Scale Solar (LSS) program is one of the projects which plays a crucial role in achieving this target.

At the end of 2016, only 2% energy comes from renewable source.

LSS was first introduced in March 2016. So far 3 rounds of bidding have been completed. Bidding process of LSS4 is currently under way and the result is expected by the end of this year.

Successful bidders have to build, own and operate (BOO) the large solar farms. A power purchase agreement at a fixed rate for 21 years will be signed with TNB.

There are many listed companies planning to diversify and share the cake of this renewable energy business. I read that Vizione, Pestech, OSK and ILB have plans to bid for LSS3.

Of course all of them failed as only one listed company won the bid in LSS3, which was Cypark. 

My Portfolio Jul20

Summary For July 2020

Jul-20
Numbers of stocks	12
Share Sold	Geshen @ 0.53 (all)
	DKSH @ 3.65 (all)
Share Bought	None
Overall 2020
Portfolio Return Jul20	16.61%
KLCI Return Jul20	6.85%
Portfolio Return YTD20	15.39%
KLCI Return YTD20	0.94%

Portfolio @ End of July 2020

Stocks	Avg	Jun20	Jul20	Div20	Jul20%	Overall%
BAUTO	1.92	1.48	1.41	4.2	-4.7	-26.6
DAYA	0.035	0.010	0.015		50.0	-57.1
HIBISCUS	1.05	0.62	0.60		-3.3	-42.8
JAKS	0.88	0.86	0.77		-10.5	-12.5
JHM	1.33	1.34	1.52		13.4	14.3
KPOWER	2.03	2.30	2.60		13.0	28.4
KRONO	0.76	0.535	0.570		6.5	-25.0
LEONFB	0.505	0.310	0.305		-1.6	-39.6
MATRIX	1.42	1.81	1.69	8.50	-8.0	19.0
PRLEXUS	1.15	0.54	0.64		18.5	-44.4
SCIB	2.06	2.13	2.83		32.9	37.4
SCIENTEX	2.735	8.90	9.10	10.0	3.4	232.7

My Portfolio gains 16.6% in July. While this type of gain in one month can be considered as impressive in those "ordinary" days, certainly it seems like a below par performance in current stock market madness where people earn 30% in one day.

Overall year-to-date return turns green for the first time since January.

I successfully trimmed my portfolio in July by disposing 2 stocks at small gain which were Geshen and DKSH, even though both have not reached my initial target price.

I sold Geshen because I don't expect its Q2 to be great and I think it might take longer time than expected to show a turnaround.

Anyway, its FY20Q2 quarter results released last week already turned profitable, even though the profit was minimal and the revenue shrank.

To my surprise, its share price rose more than 50% today. It seems like I don't have a chance to enjoy "limit up" type of experience at the moment...

The disposal of those 2 stocks is to increase my cash position as Warren Buffet said: Be fearful when others are greedy. Definitely greed is rampant at the moment.

It's very obvious that current stock market is dominated by retail investors, mostly punters or speculators who buy & sell just base on news and emotion.

It's herd mentality with fear of losing out. Financial results and valuation method such as PE ratio are not important anymore.

Such short term trading is very effective in current situation and I'd say the majority of speculators have earned big money.

However, sooner or later the party will end. It just needs one event to pull the trigger.

It might happen as soon as this year, or may be in 1 to 2 years time in which it's still a long way to go. So there might still be plenty of time for partying.

Tech stocks with PE ratio of 50 might still go up to 100. Who knows?

Some stocks are flying high for a good reason, such as gloves manufacturing stocks. However, the magnitude of rise in some other stocks are really out of mind.

Anyway, I still follow what I used to do, which is slow and boring... If I'm jobless now, I might trade short term.

SCIB and KPwower have lifted my portfolio in July, while Jaks cut the overall gain. Jaks keep dropping recently but I'm not too worry. I'll just wait for the quarterly report later this month and the outcome of AGM in September.

I plan to dispose a few more stocks and may be add 1 to 2 new members, just waiting for a good timing. Hopefully I can keep the stocks in my portfolio to below 10.

Gunung Berapi Erupts

It's been a flaming hot period now for Gunung since the turn of the year of 2020.

Its CEO and largest shareholder Datuk Syed Abdul Hussin started to pare down his entire 28% stake and exited the company. 

Its second & third largest shareholders Erayear Equity Sdn Bhd and Ooi Hock Lai with 11.8% and 10% stake respectively also ceased to be a substantial shareholder.

It is reported that former owners of Kumpulan Powernet (KPower) led by Datuk Chew Kam Wah will become major shareholders of Gunung, who will change its name to G Capital Berhad.

Kumpulan Powernet was taken over by Serba Dinamik's Datuk Abdul Karim & OHP Ventures's Mustakim Mat Nun last year and the group's name has been changed to K Power (Karim's Power?)

Relatively young Datuk Yap Yee Ping at 45 years old became the new executive director of Gunung, along with Tan Sri Dr Ali.

Bioalpha: A Fat Yet Thin Contract Secured

On 22nd of July 2020, Bioalpha Holdings Bhd who is involved in agricultural development, R&D, manufacturing, distribution and marketing of functional foods and health supplement products announced that it has won a whopping RM2.1 billion contract.

It is a "Partnership Agreement & Supply Contract Agreement" with 2 China based companies to supply ingredients for health food and nutritional meals to private and public sector in China.

I thought Malaysia normally source from China but now it's the other way round...

Limit Up Party For The Pharmas

Recently the stock market has really gone crazy. 

We know that gloves and tech stocks continue their climb to historical high since recovering from their lows in March. To them, a PE ratio of 50 seems a norm nowadays.

Today, it's the turn of pharmaceutical stocks who take center stage.

Since one of our minister publicly said that Pharmaniaga and Duopharma will be given the "bottling job" of potential Covid-19 vaccines in Malaysia, both stocks have limited up 3 times in 6 trading days.

Pharmaniaga's share price jumped 102% from RM2.25 to RM4.55 in just 6 trading days, while Duopharma's share price gained 82% from RM1.63 to RM2.96 in the same period of time.

The vaccines will be imported and the bottling process will be done by these 2 companies. Is such business lucrative?

Well, I guess the government might make this vaccination compulsory to all citizens and there are approximately 32 million of them in Malaysia. If each individual needs 2 to 3 injections, then it will be 64 million to 96 million vaccines needed. 

The government might give it for free though, and the profit margin might not be great.

It's explainable if investors and speculators fried up Pharmaniaga and Duopharma at this moment. However, it's weird that other pharmaceutical and nutraceutical stocks unrelated to Covid-19 vaccines also limited up today.

These stocks include AHealth, Kotra, DKSH, YSPSAH & Nova. The top 6 of top gainers today are all pharmaceutical stocks, and 5 of them hit limit up at 30% gain.

Boustead Holdings Berhad also gained 30% as it holds around 56% of Pharmaniaga shares.

It's strange that CCM & Apex also registered good gain respectively at 22% and 18%. Is this a coincidence?

Are people still thinking that CCM still holds Duopharma, and Apex is Apex Health? This is another example of irrationality to the extreme in stock market if it's true. 

Initially I think that DKSH might benefit from Covid-19 vaccines as it serves as the distributor of many well-known international pharmaceutical companies in Malaysia, such as Pfizer, Abbott, Novartis, Roche, Sanofi-Aventis, Boehringer Ingelheim etc.

If all Covid-19 vaccines are to be bottled in Malaysia, then DKSH might not get the "windfall". However, I think that some bottled vaccines might still be imported and distributed.

Anyway, current Covid-19 vaccine front-runner AstraZeneca is not distributed by DKSH in Malaysia.

Is the rally of pharmaceutical stocks sustainable? In this stock market euphoria, nothing is impossible at the moment. We'll see what happen next.

JAKS Wants More Cash

When I saw Jaks's Bursa announcement on rights issue on 13/7/20, I thought that it has finally fixed the price and date for its rights issue.

To my surprise, Jaks revised its original proposed rights issue in order to raise more money, from min/max RM130mil/RM160.9mil to RM200mil/RM289.6mil.

Most shareholders expect Jaks to be cash rich in a couple of years time, so they might be "shocked" by this increase in cash call.

For me, I actually don't feel particularly disappointed. I just think that Jaks needs the extra money to do something, be it to expand its business, pay the debts or compensation whatever.

Compared to private placement and huge bank borrowings, rights issue with "free" warrants might be a better way. However, I'm not too comfortable with the large amount of warrants.

I believe that the money raised will be put into good use. It will be superb if it is to subscribe to the remaining 10% of the power plant sooner to make it 40%.

I don't know the directors and I'm not sure whether they are credible, cunning or selfish. Perhaps I'm too naive. 

The original plan is 4 existing shares entitled to 2 rights shares (est 40sen) with 1 warrant.

The revised plan is 5 existing shares entitled to 8 rights shares (est 22.5sen) with 4 warrants (ex 50sen).

If you have 1,000 Jaks shares now, you are entitled to 1000 x 8/5 = 1600 rights shares and 800 warrants. You need to pay 1600 x 0.225 = RM360 to subscribe in full.

The new TERP is RM0.50 based on 5-day VWAMP of RM0.9443. So the illustrative rights share price of 22.5sen represents 55% discount to TERP which is almost similar to the original plan (53%).

A total of 888.8mil issued rights shares stated in the table above is based on minimum RM200mil. If all rights shares are fully subscribed from existing 651mil ordinary shares, the number of rights shares will be 1,041mil in which RM234mil can be raised. So the total shares will reach 1,692mil before conversion of warrants. 

The table below shows Jaks original rights issue proposal for comparison purpose.

As mentioned in previous post "Jaks Worth Only 40sen?", even though the number of shares increase substantially and EPS will be adjusted lower, there will be no dilution to existing shareholders who subscribe to the rights issue fully.

If Jaks is able to generate the anticipated RM200mil annual net profit (from 30% shares), its projected EPS will be 11.8sen base on total shares of 1,692mil. Refer "Jaks: Cash Cow In The Making?" for estimated profit and cash flow from its Hai Duong power plant.

Following the rights issue, Jaks share price will be adjusted lower accordingly. If its share price stands at 88sen on the ex-date, it should be adjusted to around 48sen if I'm not wrong.

This calculation is based on "before = after", p = adjusted share price.

(0.88 x 5) + (8 x 0.225) = (5+8)p + 4(p - 0.50)

p = 0.48

Base on projected EPS of 11.8sen, if fair PE ratio is 10x, target price will be RM1.18. This represents a potential 150% upside from 48sen.

When Jaks achieve 40% shares in the power plant, then potential annual net profit could be RM260mil with a projected EPS of 15.4sen. This is a potential 220% upside from 48sen if PE of 10x is given.

At 30% shares, a potential cash inflow of approximately RM300mil per year into Jaks is expected from the power plant operation. If the management is to give out one third or RM100mil to Jaks shareholders as dividend, it will be 5.9sen per share. This is a 50% payout from its net profit of RM200mil and a 12% dividend yield from share price of 48sen!

If Jaks choose to distribute only 20% cash from its power plant as dividend which is RM60mil, it will be a dividend payout of 30% from its net profit. Dividend per share will be 3.5sen per and dividend yield is 7.4% from 48sen.

If the dividend yield is consistently high, then the market might give Jaks a PE higher than 10x.

How much will Jaks distribute if its shares in the power plant rise to 40%? At this level, potential free cash flow attributable to Jaks might reach RM400mil annually.

Nevertheless, these calculations do not factor in the conversion of warrants in the future.

At this time the power plant in Vietnam has already fired up according to plan and the bleeding Pacific Star project should be able to be completed in 2020. Investors have to wait for year 2021 when both units of power plant run at full steam.

However, there are risks as well, such as:

- further delay or failure of the power plants operation

- net profit & cash flow contribution from power plant turn out to be way lower than expected

- management of Jaks refuse to pay reasonable dividends 

- management of Jaks burn the cash with bad investment

Once the power plants are up and running in full throttle, not even a 10th wave of Covid or further global recession or stock market rout can prevent Jaks from making consistent profit and receiving fantastic cash flow for 25 years.

Please note that this is not a buy/sell call on Jaks. I can't guarantee all the calculations and information here are correct and accurate. Invest at own risk!