Stock Name: ANNJOO
Company Name: ANN JOO RESOURCES BHD
Company Name: ANN JOO RESOURCES BHD
| Research House: AMMB | Price Call: BUY | Target Price: 2.74 |
We maintain our BUY recommendation on Ann Joo Resources, andtweak slightly upwards our fair value for the stock to RM2.74/share (unchangedtarget PE of 12x) to adjust for actual FY11 figures.
Ann Joo reported a net profit of RM62mil for FY11. The headlineprofits doubled our forecast, but came in short of consensus (~62%). Thepositive surprise against our forecast largely came from a relatively goodfinish to the final quarter.
Ann Joo managed to deliver a net profit of RM11mil in 4QFY11 (our expectations: a loss of~RM20mil) despite a challenging operating environment and start-up costs incurredduring the launch of its blast furnace in October. This reflects management'stight control over its cost structure, particularly in the procurement of rawmaterials ' we believe.
On a sequential basis, the group returned to the black againsta RM25mil loss in 3QFY11 that was mainly inflicted by inventorywrite-down/unrealised forex losses to the tune of RM60mil.
Ann Joo declared a final dividend/share (DPS) of 3.5 sen, bringingFY11 DPS to 7.5 sen or a gross yield of ~1%. This was lower than our forecastof 10 sen.
Barring a sudden deterioration in the global macro picture, weproject a 127% YoY growth in FY12F net profit at RM140mil.
We expect domestic steel demand to gather momentum movinginto 2H12 on a step-up in Malaysian infrastructure activities, particularlywith the imminent roll-out of the Sg.Buloh-Kajang MRT line.
On the other hand, prices of key inputs appear to have normalised.For instance, the average international scrap price had retracted to theUS$460/tonne level last month from US$503/tonne in September 2011.
We expect Ann Joo's net gearing level to have peak at 1.4x forFY11, improving to 1.1x and 0.9x, respectively, by FY12F-13F, following thesuccessful commissioning of its RM650mil hot metal plant last October.
Ann Joo remains our top pick for traction to the steel sector.The stock trades at attractive forward FY12F-14F PEs of 7x-9x - below itssix-year average historical PE of 11x ' against a robust EPS CAGR of 35%.
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