Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Research House: AMMB
Ann Joo Resources Bhd
(April 29, RM2.89)
Maintain buy at RM2.85 with fair value of RM4.20: Ann Joo reported first quarter (1Q) of financial year ending Dec 31, 2010 (FY10) net profit of RM41 million on back of a RM474 million turnover. While results were only 23% of our full-year estimates (consensus: 25%), we expect the group's sequential earnings momentum to gain further traction in the coming quarters on the back of rising steel demand.
During the quarter, Ann Joo's earnings jumped 82% quarter-on-quarter (q-o-q) on back of a 4.4 percentage point rise in manufacturing earnings before interest and tax (Ebit) margins to 7.8%. This was buoyed by a pick-up in regional steel exports from December last year - of which Vietnam makes up 50%. As at end-1QFY10, Ann Joo had close to 100,000 tonnes of steel products yet to be delivered.
Going forward, we expect several catalysts unfolding that would likely prod a further rerating in Ann Joo's share price. First, Ann Joo's management believes that rising scrap prices and the landmark acceptance by Japanese mills of quarterly iron ore pricing terms beginning April may imply stronger steel demand in the coming months.
This should trigger further expansion in Ann Joo's margins in the coming months as prices of semi-finished/finished steel products have begun to move up since March.
Second, the recovery should be further supplanted by imminent signs of a resurgence in local steel demand - prices of Malaysian steel bars have since risen 20%-25% to RM2,400 per tonne to RM2,500 per tonne from around RM2,000 per tonne in December 2009.
Third, Ann Joo's new blast furnace is on track for cold commissioning by June. With mutual termination of its agreement with BHP Billiton, Ann Joo aims to seal its iron ore supply from local mines instead by June. We gather that prices of domestic iron ore for grades below 60% ferum content are up to US$40 per tonne cheaper compared to international iron ore.
We maintain our buy on Ann Joo for its structural positioning within the current steel price up cycle. Stock continues to trade at compelling FY10 to FY12 price-to-earnings (PE) ratio of five times to eight times against robust earnings per share compound annual growth rate of 106%. - AmResearch, April 29
This article appeared in The Edge Financial Daily, April 30, 2010.
Company Name: ANN JOO RESOURCES BHD
Research House: AMMB
Ann Joo Resources Bhd
(April 29, RM2.89)
Maintain buy at RM2.85 with fair value of RM4.20: Ann Joo reported first quarter (1Q) of financial year ending Dec 31, 2010 (FY10) net profit of RM41 million on back of a RM474 million turnover. While results were only 23% of our full-year estimates (consensus: 25%), we expect the group's sequential earnings momentum to gain further traction in the coming quarters on the back of rising steel demand.
During the quarter, Ann Joo's earnings jumped 82% quarter-on-quarter (q-o-q) on back of a 4.4 percentage point rise in manufacturing earnings before interest and tax (Ebit) margins to 7.8%. This was buoyed by a pick-up in regional steel exports from December last year - of which Vietnam makes up 50%. As at end-1QFY10, Ann Joo had close to 100,000 tonnes of steel products yet to be delivered.
Going forward, we expect several catalysts unfolding that would likely prod a further rerating in Ann Joo's share price. First, Ann Joo's management believes that rising scrap prices and the landmark acceptance by Japanese mills of quarterly iron ore pricing terms beginning April may imply stronger steel demand in the coming months.
This should trigger further expansion in Ann Joo's margins in the coming months as prices of semi-finished/finished steel products have begun to move up since March.
Second, the recovery should be further supplanted by imminent signs of a resurgence in local steel demand - prices of Malaysian steel bars have since risen 20%-25% to RM2,400 per tonne to RM2,500 per tonne from around RM2,000 per tonne in December 2009.
Third, Ann Joo's new blast furnace is on track for cold commissioning by June. With mutual termination of its agreement with BHP Billiton, Ann Joo aims to seal its iron ore supply from local mines instead by June. We gather that prices of domestic iron ore for grades below 60% ferum content are up to US$40 per tonne cheaper compared to international iron ore.
We maintain our buy on Ann Joo for its structural positioning within the current steel price up cycle. Stock continues to trade at compelling FY10 to FY12 price-to-earnings (PE) ratio of five times to eight times against robust earnings per share compound annual growth rate of 106%. - AmResearch, April 29
This article appeared in The Edge Financial Daily, April 30, 2010.
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