AmWatch - Ann Joo Resources : Navigating through rougher seas BUY

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Ann Joo Resources : Navigating through rougher seas    BUY

We maintain BUY on Ann Joo Resources with an unchanged fair value of RM1.56/share. This is based on a target P/BV of 0.7x. Ann Joo reported 1Q15 results that were in-line with expectations. Core net profit rose 7% YoY to RM13mil despite a steep 24% YoY drop in revenue and a negative forex position of RM7mil. This made up c.24% of our full-year forecast (consensus: 35%).

During the quarter, Ann Joo recorded inventory write-down charges and allowances for diminution in the value of raw materials totalling RM8mil.  The YoY fall in topline was mainly due to lower export tonnage and depressed selling prices amid a weak international steel price outlook, although East Asian re-bar prices have staged a slight rebound from its three-year lows at ~US$350/tonne currently. Yet, manufacturing EBIT margins improved from 2.8% in 1Q14 to 4.6% in 1Q15. Apart from lower input cost, this reflects Ann Joo’s sustained operational improvements via its blast furnace.

Near-term outlook for the domestic steel industry remains fraught with uncertainties. The continued presence of cheap Chinese steel remains a key threat for Malaysian steelmakers. In 1Q15, the import of steel bars and wire rods from China surged 226% and 102% YoY, respectively. In fact, our channel checks reveal that a key local miller had turned into a net importer since 4Q14. Local bar prices are now trending at ~RM1,800/tonne, which is ~RM100/tonne lower from a year ago. 

On a more positive note, the re-affirmation of several big-ticket infrastructure projects under the 11MP should provide Ann Joo with a lift. Also, there could be some respite from dumping activities by China if the Chinese government pushes through some environmental reforms, and given the latest bout of stimulus programs. Taken together, we however opine that a meaningful impact from the measures is unlikely to be immediate.

Others :

Parkson Holdings : Smaller SSSG contraction in China       BUY

Genting Plantations : Cushioned by gain on disposal of property project                BUY

Alliance Financial : New focus on better profitability        HOLD

TH Plantations : Boosted by fair value change of timber plantations          SELL

QUICK TAKES

KL Kepong : Buying oleochemical plant in Europe              BUY

Malakoff Corporation : 1QFY15: No surprises, declares 3sen/share dividend        BUY

NEWS HIGHLIGHTS

MISC : Allocates US$1b for capex this year

Property Sector : UOA expects steady property demand

Oil & Gas Sector : Petronas to end gasoil storage at Tanjung Langsat

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.