Ann Joo Resources : A beneficiary of safeguard duties extension BUY

STOCK FOCUS OF THE DAY

Ann Joo Resources : A beneficiary of safeguard duties extension                                              BUY

We raise our FY17-19F net profit forecasts for Ann Joo Resources (AJR) by 12%, 30% and 31%, and upgrade our FV to RM3.85 from RM3.20, based on 10x revised FY18F fully diluted EPS, in line with the average of its three mid-cycles’ PE multiples of Jan’12-Sep’13, Jun’05-Jun’08 and Sep’10 till now. We maintain our BUY call. The earnings upgrade is to reflect higher assumptions for average blended steel prices per tonne realised at RM1,890,  RM2,022 and RM2,164 in FY17-19F, versus RM1,854,  RM1,947 and RM2,083 we assumed previously. This followed the government's decision yesterday to extend the imposition of safeguard duties (Exhibit 1) for steel reinforcing bar (REBAR) and steel wire rods (SWR) & deformed bar In coil (DBIC) till April 2020 (Exhibit 1), upon the expiry of the original one in April 2017. The

We keep our volume growth assumptions of 1%/3%/5% in FY17-19F (from approximately ~700mil tonnes in FY16) underpinned by strong domestic demand for steel particularly from major infrastructure projects. We continue to like AJR because: 1) it is one of the dominant local steel players, controlling 20% of the market share; 2) ASP is expected to improve with the imposition of safeguard duties to imported steel till April 2020 and the ongoing China reforms to cut steel supply while local demand is expected to rise by FY17 & FY18, particularly from infrastructure projects; and 3) its lower cost structure vis-a-vis its peers due to operational flexibility from its hybrid BF-EAF technology.

Other :

MISC : Secures another Chevron FSO charter in Thailand               HOLD

Oil & Gas : Hang on, prices could be lower for longer       NEUTRAL

QUICK TAKE

Automobile Sector : U-turn on higher excise duties for 1.5L MPVs            NEUTRAL

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Genting Malaysia, Malaysia Steel Works, Southern Steel, Nylex

ECONOMIC HIGHLIGHT

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