Photo courtesy of JEL.
Venue: JEL Centre, 11, Changi North Way.
Date & time: 2.30 pm, April 25.
I ATTENDED the AGM of JEL Corp yesterday. My key takeaways:
1. The non-executive chairman and independent director, Francis Lee, is suave and gentlemanly, and often smiles. He stood up whenever he spoke, which is nice.
He was upbeat in his opening speech. He declared that after five years of efforts at resolving various issues, especially debt-related ones, JEL is “out of the woods”. Mainly, JEL is free of bank debt.
2. He spoke about the company seeking to restore shareholder value. This was comforting to hear – even though the market has pushed up the stock price relentlessly from 0.6 cent in mid-February 2012 to 9.5 cents this morning (and even higher at 15+ cents yesterday).
Chart: Bloomberg
That makes it a 15-bagger in just over 2 months! I doubt there has ever been a sizzling run like this in decades on the Singapore Exchange. Someone let me know if I am wrong.
3. Somewhat strangely, no one (at least publicly) asked the management for its theories on what has caused the stock price to rocket. Officially, in response to SGX queries yesterday, the company said it did not know of any reason for the hefty trading and price increase.
4. The CEO, Gilbert Ee, gave a Powerpoint presentation of the FY2011 financial performance and key happenings. This is much appreciated – my experience and impression is that not many companies do this.
5. Besides being debt-free, JEL – as Francis Lee put it – has “transformed its financial landscape”. From being $17-m in debt, it is on track to have a surplus of $18 million, with $14 million coming from a proposed placement of shares to substantial shareholder Sam Goi.
6. Indications are that JEL will continue to be operationally profitable this year, as it was last year (even though it recorded a net loss arising from extraordinary items).
7. Better yet, JEL is not relying on organic growth but is seeking significant M&A opportunities. That’s the plan, and it makes eminent sense – but I was left guessing if JEL is actually working on some deals already.
The ‘correct’ answer from the management is that it is looking around for opportunities …. which is not an unexpected answer since it can’t reveal any deals as this could be materially sensitive information. There was a mention of tapping the business connections of substantial shareholders – I took this to mean, Sam Goi’s connections mainly.
(By the way, shareholders shouldn't be surprised if Francis Lee himself is in the thick of the M&A efforts. A retired corporate lawyer, he founded Corporate Ventures Group, a consultancy firm for M&A. His official biodata says that Corporate Ventures Group, of which he is the chairman, has a strategic alliance with Phillip Capital Group, for M&A work.)
8. The management reminded shareholders that JEL is still on the watchlist of the SGX. My reading is that, it is all but certain that the company will be able to get out of the watch list in due course. The management seemed confident that this would happen. For a fact, JEL is operationally profitable and has been accorded a market cap of about S$190 million currently – so getting off the watchlist is as close to certainty as it can get at this point.
9. After the AGM came an EGM to vote on a change of name of the company to Global Strategic Holdings, or GSH in short. As a shareholder noted, GSH happens to be the abbreviation for Goi Seng Hui (ie Sam Goi), who owns 15% currently and will own 57.75% when the placement of new shares to him is approved.
Shareholders duly voted for the name change and JEL (which stands for the individual names of the founder and two members of his family and associates) became history. In case you didn’t know, the founder, Eric Tan, went to jail and was fined for his role in an accounting fraud that brought on the woes that have beset the company for the past five years.
10. Closing thoughts: If GSH can clinch a significant M&A opportunity or a few such opportunities, it would gain firmer ground to boost its earnings and revenue. The stock price has run way ahead of this event, though. JEL's current distribution business (of IT, photographic and timepiece products in emerging markets) has a mere 6.6% gross margin (FY2011) and was barely profitable, so that cannot justify the sudden significant run-up in the market value of the business.
Within the management, the CEO has gained the most from the stock run-up -- and would have added motivation to take the business as far as possible. Gilbert Ee has gone from just 437,500 shares prior to the rights issue in February 2012 to 644,073,696 shares post-rights issue, as he subscribed for, and was allocated, excess rights shares not taken up by other (anxiety-stricken) shareholders.
So, in just two months, he has reaped a paper gain of $59 million from the rights shares which he paid 0.35 cent apiece only.
The biggest winner is, of course, substantial shareholder Sam Goi (who is not part of management). The proposed placement of 2 billion new shares to him was at (market price then) 0.6999 cent apiece. At this point in time, he is in the money by $176 million (ie, 9.5 cents minus 0.6999 x 2 billion shares)!
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Comments
Besides JEL which went on a purely speculative run without any tangible value add-on, another speculative penny stock that has escaped mention is TTI which has gone from 0.01 in Dec 2011 to a high of 0.18 before closing down at about 0.12 yesterday. With accumulated losses of about $245m which wiped out its entire capital, the company is being kept alive by creditors' money. It will take about 2 years to build the complex at Jurong East, and assuming being fully leased out when completed, will probably contribute, at best, $30m - $35m a year to its coffer. At that rate it would take 7 years before its accumulated losses can be erased. In other words there is no prospects for dividends for the next 9 - 10 years for potential shareholders.