Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Research House: RHB
Ann Joo Resources Bhd
(Feb 22, RM2.92)
Downgrade to underperform at RM3 with revised fair value RM3.02 (from RM3.14): We believe Ann Joo's FY10 ended December results (due out on Feb 24) are likely to come in below our as well as the market's expectations due to lower than expected sales volume, particularly in the export segment. This is despite some slight improvement in average selling prices and margins. Export sales to Vietnam, its main export market, will have declined significantly owing to the surging inflation and currency devaluation in the nation.
We understand that there will be a further delay in the commissioning of Ann Joo's mini blast furnace project to end-April, from early January previously. However, the impact to our FY11 forecast is negligible as we have assumed minimum contribution from the project in 1H11.
While there have been encouraging signs of late in the form of rising steel prices globally since early 2011, we view these increases as cost push in nature and not demand push. Having said that, Ann Joo is still expected to achieve better margins compared with its peers in 1H11, as it with foresight stocked up scrap (that will last until end-February) when scrap prices were below US$400 (RM1,220)/tonne in 2H2010 (against US$490-500/tonne currently).
We cut our FY10 net profit forecast by 12.2% to RM137.9 million, largely to reflect the lower sales volume. We also cut our FY11/12 net profit forecasts by 3.8% and 1.3% respectively, after adjusting for:
(i) '' ''higher raw material costs that more than offset higher average selling prices; and
(ii) '' ''lower effective operating days for its mini blast furnace project (from 350 days to 230 days) in FY11.
The risks include:
(i) '' ''oversupply in China that results in dumping by Chinese steel producers in the international market;
(ii) '' ''a steep contraction in global steel consumption that will weigh down international steel prices; and
(iii) disruption in supplies of raw materials.
We believe volume and top line growth of steel producers are not likely to translate to significantly improved profitability, as margins will continue to come under pressure due to rising feedstock prices (iron ore, coking coal and scrap). Indicative fair value is reduced to RM3.02 (from RM3.14) based on 10 times revised FY11 fully-diluted earnings per share of 30.2 sen, in line with our one-year forward target PER for the steel sector. Downgrade to 'underperform'. ' RHB Research, Feb 22
This article appeared in The Edge Financial Daily, February 23, 2011.
Company Name: ANN JOO RESOURCES BHD
Research House: RHB
Ann Joo Resources Bhd
(Feb 22, RM2.92)
Downgrade to underperform at RM3 with revised fair value RM3.02 (from RM3.14): We believe Ann Joo's FY10 ended December results (due out on Feb 24) are likely to come in below our as well as the market's expectations due to lower than expected sales volume, particularly in the export segment. This is despite some slight improvement in average selling prices and margins. Export sales to Vietnam, its main export market, will have declined significantly owing to the surging inflation and currency devaluation in the nation.
We understand that there will be a further delay in the commissioning of Ann Joo's mini blast furnace project to end-April, from early January previously. However, the impact to our FY11 forecast is negligible as we have assumed minimum contribution from the project in 1H11.
While there have been encouraging signs of late in the form of rising steel prices globally since early 2011, we view these increases as cost push in nature and not demand push. Having said that, Ann Joo is still expected to achieve better margins compared with its peers in 1H11, as it with foresight stocked up scrap (that will last until end-February) when scrap prices were below US$400 (RM1,220)/tonne in 2H2010 (against US$490-500/tonne currently).
We cut our FY10 net profit forecast by 12.2% to RM137.9 million, largely to reflect the lower sales volume. We also cut our FY11/12 net profit forecasts by 3.8% and 1.3% respectively, after adjusting for:
(i) '' ''higher raw material costs that more than offset higher average selling prices; and
(ii) '' ''lower effective operating days for its mini blast furnace project (from 350 days to 230 days) in FY11.
The risks include:
(i) '' ''oversupply in China that results in dumping by Chinese steel producers in the international market;
(ii) '' ''a steep contraction in global steel consumption that will weigh down international steel prices; and
(iii) disruption in supplies of raw materials.
We believe volume and top line growth of steel producers are not likely to translate to significantly improved profitability, as margins will continue to come under pressure due to rising feedstock prices (iron ore, coking coal and scrap). Indicative fair value is reduced to RM3.02 (from RM3.14) based on 10 times revised FY11 fully-diluted earnings per share of 30.2 sen, in line with our one-year forward target PER for the steel sector. Downgrade to 'underperform'. ' RHB Research, Feb 22
This article appeared in The Edge Financial Daily, February 23, 2011.
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