Tuesday, March 12, 2019

Jaks recent rise is almost a given

From lows of 42 sen, Jaks shares had made a comeback quite quickly - to now 79 sen. In that period of between 18 December 2018 to now, these were the happenings:

- Ang Lam Poah awarded himself 25.164 million shares under the Restricted Share Plan scheme. That's about 5% of new shares for free.
- Jaks had to bear a RM 25.5 million charge on its loss given Star exercised on the bank guarantee in January 2019
- Ang Lam Poah had a close call as an old man fought him tooth and nail over the company, in the process asked him to do all kinds of things including issuing free warrants. (There could be more which I did not manage to track)
- Additional warrants were also issued with Jaks issuing a 1 warrant for 2 shares held. These warrants were not free but one has to pay 25 sen for it. (This basically also additionally cornered KYY as he probably had to come out with a substantial sum of money for the warrants)

Checking back, I have written this article on Jaks 2 years ago. At that time, I knew KYY was going to corner himself given the amount that he had been purchasing. He went to buy more after that and the highest he and his wife were holding was close to 30%. He was basically asking the public to bail him out. See below.

Of course, in that fight over shareholdings, as I have mentioned Ang Lam Poah would have fought back, and fought back he did. He did not have the funds to challenge and given the ridicularity of the exercise, there would not be a 2 party proxy fight.

Ang Lam Poah knew he had the upper hand. In the end, the condition of the market (which was bad after GE14) as well as the selling by smaller shareholders whom were taking opportunity to sometimes sell to KYY, it was obvious there would be huge pullback. The pullback was further made worse by a huge selling (including margin calls) of close to 30%. Imagine 30% or more shares changed hands over a period of 6 months. There was bound to be oversold position especially when the fundamental was little change - except for the RM50 million bank guarantee which was call upon in the Star vs Jaks case.

All in all, KYY was not honest, and I remember reading somewhere where he said the purchase of Jaks was meant for the long term - which obviously was a lie.

On Jaks and whether at this price is it fairly priced

In another one of my article, I have mentioned that Jaks had a lucrative contract. It is not yet completed and scheduled to be completed partially only by 2020. I am not so sure of Jaks' capabilities in the execution, but with its China's partner - it should as CPECC does have the capabilities. At its current market capitalisation of around RM461 million despite Ang Lam Poah giving himself free shares, it is probably still undervalued as that power plant contract itself is substantial.

Another potential upside is that if we check around situations around Vietnam, currently it is facing shortages of power supplies towards the future, given that it is hugely industrialised now. The US China trade war presents a lot of opportunities for Vietnam and power is needed.

Personally, I do not like the way free shares were awarded to the CEO and his director, but I guess he also did it to protect himself. Another person that comes along may be more professional and deeper pockets than KYY.

But, as in any person sometimes there are some trading opportunities and this seems to be one of it.

Friday, March 1, 2019

Airasia's 4Q18 results shows purchasing power is weak

Airasia is going to be fine. They have positioned themselves to grow when there's space for them to. Although the leasing of planes that they have sold are committed, the commitment is not long. In any case, the way Airasia positions itself, it will need the planes anyway. It has rooms to grow in Philippines, India and even Indonesia and Japan. Whether those new additions will translate into immediate profits is however arguable. Hence, comes to the bigger issues.

I know where and what Airasia is thinking, to an extent. It wants to be the dominant ASEAN airline - forget me saying about low costs airlines as even in Malaysia one can see that they have 58% market share. If that is the number, this means low costs airlines is now mainstream, and full fledged is going out of mainstream. The way Airasia positioned that, to me - in the short run will have some issues. If one is to buy tickets, pricing wise, the competition is scarce especially in Malaysia. To fly to Singapore from KL though, we have additional options for cheap fares.

However, for Malaysia, that option is almost now negligible. Airasia is actually fighting against Airasia in terms of pricing. For example, if I want to fly from Penang to KL around 8pm to 10pm, I have options in terms of pricing - all from Airasia. If I go out of Airasia, then I have to pay considerably more. Hence, Airasia has positioned themselves as such. It has crowd out Malindo and MAS. It plans to also crowd out others in other countries that it operates in - such as Thailand, maybe Philippines in the longer term. For Indonesia, it will be tough as Lion Air is very strong despite the sad event last year.

For 2019 and 2020, what used to not be its strategy for last 2 years, it has brought back into decision. Hedging fuel price. Hence, so far so good. It has hedged 52% of fuel for 2019 at USD63 and 40% for 2020 at USD60. That, by itself shows that Airasia knows what is the price point, people will be willing to buy its tickets. Hence, by eliminating some of the uncertainties in costs, it can strategize better.

Now, then if Airasia is doing that well, why is it announcing such a bad result. To me, it was triple whammy for the last quarter. What supposed to be the most promising quarter usually as it is holiday period, they turned in losses - massive. The first thing was fuel costs. Something went wrong. I know they did not hedge as at last year's policy but it was USD91 jet fuel. The highest Brent crude went was about USD80, then towards November it went down to as low as USD52 in December. I also understand that Airasia sells a lot of their tickets upfront but at USD91 is surprising.

Second thing, of course is the weak currencies throughout ASEAN. A lot of the costs are in USD - from lease to fuel to interests payment.

The third thing, for Airasia is the lease costs which it has to now bear because it has sold a substantial number of its planes and need to leaseback. These are costs which will stay. I do not see our ASEAN currencies to be significantly stronger in the next few quarters. Neither will the lease be going off soon.

However, one BIG thing which I do not put in as a whammy is the weak pricing of its tickets. Its RASK is 14.82 sen for 4Q18 against 15.46 sen in 4Q17. It can say that its total available seats has grown substantially by more than 20%, but that drop is also bad. Suffice to say that the load factor has also gone down from 88% to 84%. As mentioned, usually, this is the period where people travel - many a times for leisure. Hence, its pricing is now elastic, significantly elastic - which is no good. Perhaps, Airasia for regionally has no longer become the airline for leisure but business travel has become a big part of its business. When people take off for holiday or stay at home, its yield suffers - as they have become leisure traveller rather than business traveller, perhaps.

I may be wrong in some part - but the argument of huge disparity of income is potentially true. The richer ones are travelling to Europe, or Japan. The poorer ones are no longer flying for holidays or maybe very petty when comes pricing.

No good for the economy. Airasia will overcome that in the longer run as it now understands demand and readjust. It has readjusted partially, as mentioned above in hedging the fuel price early. But the poor spending behaviour shows that people are very timid when comes to purchasing. What I fear is that the trend that Airasia has shown being a regional airline is that not even Malaysia, regionally people are not having that much freedom to buy.

I have seen in some of the results, not even on Airasia but others. The larger scale of things, we do not know how big will the impact be in the shorter term future. I have mentioned about what's dangerous in the near term, but this is one which is really I am seeing signs that shows what is potentially coming.