Short read:

  • Jackstones, Inc.’s (PSE: JAS) intention to eliminate its deficit is a business development that is worth watching for in the second half of this year given that its annual stockholders meeting is on June 13, 2017
  • JAS is worth as high as P3.94 to as low as P0.70
  • JAS appears to be properly valued at P3.69
  • The person with knowledge about the assets that Mariano Tanenglian owns is the best person to invest in this stock

Long read:

On October 12, 2014, eleven (11) shareholders of Jackstones, Inc. (the “Company”)  sold to Ketton Holdings, Inc., Mariano C. Tanenglian, Aleta So Tanenglian, Maximilian So Tanenglian, Jonathan Ong Carranceja, Adaline Ong Carranceja, Beryl Fayette Tanenglian Say, and Vandermir Carnegie T. Say 117,291,367 shares of stock for P2.2679 per share or P266 million resulting to 54% ownership in the Company.

Family Relationship to take note of:

Jackstones Family Relationship

JAS Tanenglian Family Relationship

Mariano Tanenglian is said to be the brother of Lucio Tan.1 For those who want to dig deeper about the relationship between Mariano Tanenglian and Lucio Tan can read a blog post: What’s next for Mariano Tanenglian2  (this information is not critical in our analysis but just in case you are curious). Worth noting in the management team are the credentials of Vandermir Tan Say which is a CFA and Beryl Say, among the top 10 passer in the architect licensure exams. These are worth noting as we will have an idea how their finances will be handled and the business they will likely go into.

According to the Company’s latest financial statements, the following are JAS’ major shareholders:3

Jackstones, Inc. top shareholders

In JAS’s financial statements, they that they are in the process of building a portfolio of businesses under information technology, energy and power, agriculture, and real estate with the primary focus on ASEAN region.4

On a March 10, 2017 meeting, the Board of Directors (BOD) of JAS approved the increase of authorized capital stock from P170 million to P500 million (or P330 million increase) and Ketton Holdings, Inc. is expected to subscribe for at least P82.5 million paying at least P20.6 million in cash. The BOD also approved the proposal by the President to incorporate a wholly owned subsidiary to engage in the business of owning, holding, developing, selling or real property intended for mixed-use real property development projects. The increase in number of shares will be ratified or in other words formalized during the annual stockholders meeting on June 13, 2017.5

Analysis:

Information about the properties of Tanenglian family is hard to obtain via google search alone. There is also no information about the assets held by Ketton Holdings, Inc. in SEC i-View.

Using only publicly available information, the following information are relevant in the analysis to determine the minimum amount of asset that will be infused to JAS:

  1. JAS’ intention to bring its current equity of negative P299 million to a positive. 5
  2. JAS currently in discussion with various investment groups to raise new capital.7
  3. JAS seriously considering another public offering.7

(Technical stuff: Assuming the intention of JAS to eliminate deficit, we can expect the Company to apply for organizational restructuring with SEC in the future in accordance with SEC Memo 11 series of 2008 which states that “Additional Paid-In Capital shall neither be declared as dividend nor shall it be reclassified to absorb deficiency except through an organizational restructuring duly approved by the Commission”.6)

Currently JAS has a P299 million deficit, assuming that the JAS is serious in bringing the deficit to positive, Ketton needs to infuse the following amount:

Computation of minimum assets to be infused to eliminate deficit of Jackstones, Inc.

*Companies are required by SEC to subscribe for 25% of the increase in authorized capital stock.8 ([500 million – 170 million] x 25% = 82.5 million)

At a minimum, Ketton is required to subscribe for at least P82.5 million worth of shares. Since JAS intends to wipe out their deficit, they need to pay more for the 82.5 million shares in order to create P167 million share premium. Therefore, we can say that Ketton will infuse at least P250 million worth of assets in the company as soon as SEC approves their application for organizational restructuring.

Valuation:

In my opinion, the value of JAS lies on the expected asset to be infused to the Company. Using the conservative assumption above and that JAS’ deficit will be eliminated we can arrive at an estimated book value of P.99.

Jackstones, Inc. book value after elimination of deficit

Using relative valuation, we could have price to book value (P/BV) range between 0.71 P/BV multiple of ROCK to 3.99 P/BV multiple of SMPH or a valuation of as high as P3.94 to as low as P0.70.

Our valuation would change as soon as we have clarity on what type of asset will be infused in JAS. Currently it appears the market values the Company appropriately at P3.69.

Business development to watch for:

Details of assets to be infused in the Company which may be available in the second half of this year. However, if you have an idea on the assets, especially the real estate company, that Mariano Tanenglian owns, you are in the best position to invest in this company.

 

Disclosure: All that we say is not a recommendation to BUY or SELL but treat our blog as a tool to aid you in your investment decision making.

Position: I do not own any shares mentioned above but plans to take position on JAS in the future.

Sources:

  1. Group of Lucio Tan’s brother buys 70% of Jackstones Inc., http://business.inquirer.net/180267/group-of-lucio-tans-brother-buys-70-of-jackstones-inc
  2. What’s next for Mariano Tanenglian?, http://truthaboutluciotan.blogspot.com/2010/09/whats-next-for-mariano-tanenglian.html
  3. JAS Annual Report 2016, p.7, https://goo.gl/EWfPoq
  4. JAS Annual Report 2016, p.4, https://goo.gl/EWfPoq
  5. JAS SEC 20-IS Preliminary, p.21, https://goo.gl/90pWkF
  6. SEC Memo 11 series of 2008, last paragraph of Section 5, http://www.sec.gov.ph/wp-content/uploads/2015/11/sec-memo-11s2008.pdf
  7. JAS SEC 20-IS Preliminary, Management discussion and analysis, p.22, https://goo.gl/90pWkF
  8. Corporation Code of the Philippines, Section 38, paragraph 4, https://goo.gl/Yzb76R

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