Is JETSON a buy or sell?

It has been a few months since the reported fallout between the Naza brothers and the management of Kumpulan Jetson Bhd. Since then, the stock has fallen from over RM1.50 to RM1.07 last Friday, and lost about a third of its value from November last year, when it hit over RM3.

At this price, is Jetson, a stock not covered by analysts, a buy or sell?

Market observers say it would depend on two scenarios.

If the Naza brothers could sort out the differences with Jetson’s management led by group managing director Datuk Teh Kian An, who is said to be backed by other shareholders, and revive the previously cancelled joint ventures with Jetson, the latter’s stock price could rebound significantly.

The Naza brothers, Sheikh Mohd Nasarudin Nasimuddin and Sheikh Mohd Faliq Nasimuddin, are currently Jetson’s chairman and executive director, and vice-chairman and executive director, respectively.

Jetson’s current market value stands at about RM65 million, which is tiny compared to the potential profits it might generate from the two projects that it had earlier signed with Naza but cancelled.

These refer to a 49:51 joint venture with the Naza Group to construct the proposed RM800 million Matrade Centre project off Jalan Duta and the development of the adjacent 62.5 acres land under a land-swap arrangement with the government, as well as the construction job relating to Naza’s multi-billion ringgit Platinum Park project near KLCC.

But what if the Naza brothers decide to sell out from Jetson?
The brothers, through Super Pavilion Sdn Bhd, bought a 33.2% stake (now diluted to 28.9% after placement of new shares) in Jetson for RM12.3 million or 70 sen per share in August 2009. If they were to exit, they wouldn’t sell out at below 70 sen, presumably.

So the base price, in the event of a sale to a new investor or investors, would be 70 sen, if not around RM1 or some premium over which Jetson is currently traded, market observers say.

The brothers are said to be still pondering their moves, though they are expected to decide “soon”, sources say. Jetson’s stock price has been hovering at the RM1 level pending further indication of the brothers’ decision.

Without the Naza brothers, or any new major shareholder with a pipeline of big projects, investors might not be willing to value Jetson at a higher price. Though the company’s net tangible asset per share stood at RM1.72 per share, it lacks a strong operating performance.

Jetson posted a net profit of RM283,000 for the six months ended June 30, 2010, on a turnover of RM104.98 million.

During the period, its manufacturing division posted a revenue of RM55.62 million and an operating profit of RM5.38 million, while the construction and property division, and hostel management operation posted an operating loss of RM3.19 million and RM280,000, respectively.

Nonetheless, the company has a clean balance sheet, with net borrowings of RM30.91 million that could be set off against RM41.34 million in net receivables. It is also cash flow positive.

The Naza brothers had bought into Jetson not only for its construction experience but also its manufacturing division that produces rubber, plastics and polyurethane products that offer anti-vibration solutions mainly to the automotive sector.

Jetson also manufactures, under licence from Dunlop, underseals and coating for automotive bodies.

These are synergies that fit well with Naza Group’s core business in automotive and increasingly property development. Its clean balance sheet also made it a suitable listing vehicle for Naza.

But should the deal fall through, resulting in the exit of the Naza brothers, Jetson would need to find a new investor that could bring it to a higher ground.






Written by Siow Chen Ming
This article appeared in The Edge Financial Daily, September 20, 2010.