JAKS Resources (JAKS) proposed to raise up to a minimum of c.RM67m, by issuing up to 49.6m new shares at an issue price to be determined later. Based on illustrative issue price of RM1.39 (discount < 10% to the five-day volume weighted average market price) and assuming minimum of 49.6m placement shares issued, the proceeds estimated at c.RM67m will be used mainly to finance construction costs of on-going projects (c.RM45m), working capital for Evolve Concept Mall (c.RM20m) and the remaining for other working capital and placement expenses. It is disconcerting to see another placement within such a short period of time. To recap, it just placed out 10% of its shares in March 2017, which raised c.MR60m at RM1.36 per share. The exercise is dilutive but necessary to address the near-term cash needs to facilitate the completion of its Pacific Star project especially Tower A (Star Tower). After adjusting for the proposed placement and some balance sheet items, we revised downwards the fair value to RM1.60 (from RM1.75 previously), based on 20% discount to our SOTP estimates of RM2.00. Maintain Neutral call for now.

• Tapping Equity Market again. The placement is estimated to raise from minimum of RM67.2m to RM68.7m. We believe the main trigger for the shares placement is to raise the capital to complete its Pacific Star Project, which garnered much attention of late as Star Media Group has called on the corporate guarantees amounting to RM50m. Jaks has filed an injunction with the court to block the payment, and the next court hearing will be on 20 March 2018. We understand that Tower A has achieved 95.6% completion at end-February, and hence Jaks should be able to deliver full completion by June 2018 while completing other components in phases. The target completion for the placement is by 3QCY2018, but we suspect it to be earlier for the Group to move in to complete the construction works. Separately, its net gearing is expected to improve to c.0.8x from c.1.1x currently post the private placement.

Source: PublicInvest Research - 15 Mar 2018