Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Research House: OSK
Ann Joo Resources Bhd
(Jan 18, RM3.05)
Maintain neutral call, revise fair value to RM2.89 from RM2.76: From our visit to Ann Joo Resources last Friday, we gather that the company may benefit from escalating steel prices by riding on its huge inventory pile, which was last reported to be worth RM1.2 billion.
However, the quantum may be limited and the numbers already included in our original estimates. We also think some quarters may be disappointed with the prolonged delay in its mini blast furnace project, and its 4QFY10 results may come in below market expectations.
Therefore, we are maintaining our 'neutral' call but revise our fair value upwards to RM2.89 after lifting our price-earnings ratio (PER) valuation to nine times from eight and maintain our 1.38 times book value per share on the FY11 numbers.
During our meeting with Ann Joo's management, managing director Datuk Lim Hong Thye gave us an insight into the outlook for the company and steel industry in general, as well as an update on the company's mini blast furnace project.
While we do not concur with Lim's view that the steel market will potentially experience a super cycle this year given the long-term material cost push and supply shortage of long steel, we share his opinion that the current hike in steel and its feed material prices may pull back in the next few weeks as the increase has been too steep.
Our belief is based on the fact that the present spike in raw material cost is largely driven by a sudden supply shortage caused by severe weather conditions, including floods in Queensland, Australia, and extreme winter in the US and Europe.
We think prices may retreat when weather conditions improve. We also sense from the meeting that Ann Joo may report weaker than expected 4QFY10 results, although its numbers were still stronger quarter-on-quarter, owing to weaker sales volume and a marginal recovery in profit margin.
Given its poor earnings visibility beyond six months, we are keeping our FY11 estimates almost unchanged but revise downwards our FY10 net profit by12.5% to RM146.7 million.
As for the long delayed commissioning of its mini blast furnace, management has put the blame on this being the first'' project of its kind in the country, and as such there are bound to be unexpected hiccups during the construction period.
Nonetheless, management is confident of putting the plant into operation in May or June 2011, barring unforeseen circumstances. Meanwhile, the company has had two loads of coke delivered earlier via Handymax bulker to its yard, but has yet to make any orders for iron ore since the mutual termination of its proposed long-term supply contract with BHP Billiton.
Management has also temporarily put on hold the slab caster project, but its capital expenditure still stands at RM650 million as it has invested in upgrading its steelmaking and rolling mill capacity, which have raised its billet capacity to 1.1 million tonnes per year (tpy) and 620,000 tpy for billet/wire rods. ' OSK Research, Jan 18
This article appeared in The Edge Financial Daily, January 19, 2011.
Company Name: ANN JOO RESOURCES BHD
Research House: OSK
Ann Joo Resources Bhd
(Jan 18, RM3.05)
Maintain neutral call, revise fair value to RM2.89 from RM2.76: From our visit to Ann Joo Resources last Friday, we gather that the company may benefit from escalating steel prices by riding on its huge inventory pile, which was last reported to be worth RM1.2 billion.
However, the quantum may be limited and the numbers already included in our original estimates. We also think some quarters may be disappointed with the prolonged delay in its mini blast furnace project, and its 4QFY10 results may come in below market expectations.
Therefore, we are maintaining our 'neutral' call but revise our fair value upwards to RM2.89 after lifting our price-earnings ratio (PER) valuation to nine times from eight and maintain our 1.38 times book value per share on the FY11 numbers.
During our meeting with Ann Joo's management, managing director Datuk Lim Hong Thye gave us an insight into the outlook for the company and steel industry in general, as well as an update on the company's mini blast furnace project.
While we do not concur with Lim's view that the steel market will potentially experience a super cycle this year given the long-term material cost push and supply shortage of long steel, we share his opinion that the current hike in steel and its feed material prices may pull back in the next few weeks as the increase has been too steep.
Our belief is based on the fact that the present spike in raw material cost is largely driven by a sudden supply shortage caused by severe weather conditions, including floods in Queensland, Australia, and extreme winter in the US and Europe.
We think prices may retreat when weather conditions improve. We also sense from the meeting that Ann Joo may report weaker than expected 4QFY10 results, although its numbers were still stronger quarter-on-quarter, owing to weaker sales volume and a marginal recovery in profit margin.
Given its poor earnings visibility beyond six months, we are keeping our FY11 estimates almost unchanged but revise downwards our FY10 net profit by12.5% to RM146.7 million.
As for the long delayed commissioning of its mini blast furnace, management has put the blame on this being the first'' project of its kind in the country, and as such there are bound to be unexpected hiccups during the construction period.
Nonetheless, management is confident of putting the plant into operation in May or June 2011, barring unforeseen circumstances. Meanwhile, the company has had two loads of coke delivered earlier via Handymax bulker to its yard, but has yet to make any orders for iron ore since the mutual termination of its proposed long-term supply contract with BHP Billiton.
Management has also temporarily put on hold the slab caster project, but its capital expenditure still stands at RM650 million as it has invested in upgrading its steelmaking and rolling mill capacity, which have raised its billet capacity to 1.1 million tonnes per year (tpy) and 620,000 tpy for billet/wire rods. ' OSK Research, Jan 18
This article appeared in The Edge Financial Daily, January 19, 2011.
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