Ann Joo Resources Bhd (Oct 20, RM2.11)
Maintain neutral at RM2.12 with target price of RM2.16: Ann Joo Resources is expected to announce its 3QFY11 results in November. We are expecting it to record lower 3QFY11 net profit by 7% to 10% against its 2QFY11 net profit of RM35.5 million.
This is due to:
i) higher input costs aggravated by a weakened ringgit against the US dollar and an increase in scrap prices by 27% year-on-year (y-o-y ) during the quarter;
ii) slower revenue growth attributed to weak domestic demand following slower construction activities during Ramadan and Hari Raya Aidilfitri.
Ann Joo’s domestic market contributes roughly 60% of its top line with the remaining 40% from the export market. We believe Ann Joo’s export market rebounded in 3QFY11 as long steel demand resumed after the political unrest in the Middle East and North Africa and post-Japan earthquake. Due to Ramadan and Hari Raya, domestic sales are unlikely to be higher in 3QFY11.
Management has hinted that the RM650 million blast furnace project is likely to take off next year instead of this year. This has no impact on our projections as we will not impute any contribution until the blast furnace begins production.
We reaffirm our expectation that local steelmakers’ exports will continue to be weak for the rest of this year due to mounting concerns over the global headwinds which will affect top line growth and margins. Billet and steel bar prices continue to fall. Billet prices have fallen 4.3% and steel bars by 3.4% in the last two weeks alone. Billet is now US$667.50 (RM2,090) per tonne and bars US$705.
We would not be surprised if Ann Joo, one of the country’s major steel players, sees weak earnings in 4QFY11 due to the decline in prices and demand.
At this juncture, we are maintaining our “neutral” recommendation with a target price of RM2.16 pending the announcement of its 3QFY11 results. We set Ann Joo’s target price by pegging its FY12F earnings per share of 36 sen to a price-earnings ratio of six times, which is one standard deviation below its five-year average PER. — MIDF Research, Oct 20
Maintain neutral at RM2.12 with target price of RM2.16: Ann Joo Resources is expected to announce its 3QFY11 results in November. We are expecting it to record lower 3QFY11 net profit by 7% to 10% against its 2QFY11 net profit of RM35.5 million.
This is due to:
i) higher input costs aggravated by a weakened ringgit against the US dollar and an increase in scrap prices by 27% year-on-year (y-o-y ) during the quarter;
ii) slower revenue growth attributed to weak domestic demand following slower construction activities during Ramadan and Hari Raya Aidilfitri.
Ann Joo’s domestic market contributes roughly 60% of its top line with the remaining 40% from the export market. We believe Ann Joo’s export market rebounded in 3QFY11 as long steel demand resumed after the political unrest in the Middle East and North Africa and post-Japan earthquake. Due to Ramadan and Hari Raya, domestic sales are unlikely to be higher in 3QFY11.
Management has hinted that the RM650 million blast furnace project is likely to take off next year instead of this year. This has no impact on our projections as we will not impute any contribution until the blast furnace begins production.
We reaffirm our expectation that local steelmakers’ exports will continue to be weak for the rest of this year due to mounting concerns over the global headwinds which will affect top line growth and margins. Billet and steel bar prices continue to fall. Billet prices have fallen 4.3% and steel bars by 3.4% in the last two weeks alone. Billet is now US$667.50 (RM2,090) per tonne and bars US$705.
We would not be surprised if Ann Joo, one of the country’s major steel players, sees weak earnings in 4QFY11 due to the decline in prices and demand.
At this juncture, we are maintaining our “neutral” recommendation with a target price of RM2.16 pending the announcement of its 3QFY11 results. We set Ann Joo’s target price by pegging its FY12F earnings per share of 36 sen to a price-earnings ratio of six times, which is one standard deviation below its five-year average PER. — MIDF Research, Oct 20
