Monday, September 01, 2014

Picking A Gem From The Rubble

The sharp selldown in many small caps recently took many counters down a few notches, good and ones all in. From the rubble of the demise, I think the best pick for a short, medium trade/hold would have to be Ideal Jacobs. Readers might remember that I had written about it around June and the stock has since then surged from 45 sen to 74 sen. But has fallen substantially over the last few days to be below 45 sen again.

I also said it could very well be the next Barakah. Barakah has basically gone from 200-300 million in market cap on their RTO and crossed the one billion market cap mark recently.

To me, the companies doing the RTO into Ideal Jacobs are a lot more attractive and not burdened by asset heavy (expensive toys) of Barakah. Barakah latest reported PAT is around just RM9m while Cekap/Mecip are being injected at a PE of just over 11 on PAT of just over RM11m, and they operate on much better margins as well.

To pacify current shareholders of IJ, there will be a one for two free warrant, depending on the exercise price (20-30 sen, not fixed yet) could very well fetch a market price eventually of between 12-15 sen based on an ex price of 35 sen for mother share. There will be about 500m shares of CMOG (new company name) after the RTO,which makes the counter valued at RM500m if share price is at RM1.00. 

I am not saying the share price will go to RM1.00, all I can say is that the drivers at Cekap/Mecip are well known and highly respected leaders in their field (ask any oil and gas expert) and they have performed well regionally and can compete globally already. I expect bigger value projects to eventuate based on their better market capitalisation, listing status, a lot more cash in their books and better visibility. This is not a 4,5 year type of company rushed for a listing. They have been building up for more than 20 years.

Hence looking at the rubble among small caps, I think its a no brainer below 50 sen for IJ before ex. My fair value assessment is 57-62 sen (pre) and 40-45 sen (post). I suspect, some punters with troubled position over the reduction of margin in a few counters such as PDZ and Sumatec, may well be force to cut their other holdings which may be making money, such as IJ.

NOTE: The above opinion is not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). I may already have positions in the stock mentioned above. The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

Price Chart

ZoomFromMay 29, 2014ToAug 29, 2014PricesVolume4. Aug30. May6. Jun14. Jun22. Jun30. Jun8. Jul16. Jul24. Jul12. Aug20. Aug28. Aug0.10.20.30.40.50.60.70.80M20M40MJul '11Jan '12Jul '12Jan '13Jul '13Jan '14Jul '141m3m6mYTD1yAllWednesday, Jul 9, 00:00-11:59IJACOBSOpen: 0.39High: 0.395Low: 0.38Close: 0.385Volume: 5,045,100klse.i3investor.com

In June, Ideal Jacobs signed a heads of agreement relating to the proposed RTO by the owners of Cekap Technical Services Sdn Bhd and Mecip Global Engineers Sdn Bhd. Cekap executive chairman Sofiyan Yahya said the listed status of the company would give both Cekap and Mecip, who have worked together before, a strategic gateway to another level of their businesses. Cekap has been a contractor for big names in the oil and gas sector like Petronas, Sarawak Shell Bhd, ExxonMobil, Talisman Malaysia Ltd and Murphy Oil Corp. 

A special purpose vehicle, CMOG Group ­Sdn Bhd, has been incorporated to undertake the RTO exercise and, eventually, assume the listing status of Ideal Jacobs. CMOG will first acquire the entire equity interests from both the vendors of Cekap and Mecip at RM129mil, to be satisfied by the issuance of 516 million new CMOG shares to the vendors at 25 sen per share.
Ideal Jacobs and CMOG have also entered into a master restructuring agreement to undertake a scheme that entails the exchange of the entire issued and paid-up capital of Ideal Jacobs of up to RM13.8mil comprising 138 million shares of 10 sen each, for 138 million new CMOG shares that come with 69 million free warrants. This means, one CMOG share for every Ideal Jacobs share and one free warrants for every two CMOG shares.