Period 2QFY12/1HFY12
Actual vs. Expectations
Below ours and the
consensus expectations.
The company reported
a core net profit of RM21.8m (after adding back an unrealised foreign exchange
loss of RM27.8m), which only made up around 21% and 24% of our FY12 fullyear
estimate of RM106.1m and the consensus’ forecast of RM89.3m respectively.
Dividends No
dividend was declared.
Key Result Highlights
QoQ, 2Q12 core
earnings jumped by 278% to RM17.3m from RM4.6m in 1Q12. This was mainly due to
the higher recognition of initial start-up cost for its blast furnace
operations in 1Q12.
YoY, the revenue grew
by 9% although its core net profit fell by 47% from RM32.7m. This was due to a
lower core net margin of 2.9% (2Q11: 5.8%) attributable to a lower utilisation
rate and higher operating expenses.
YoY, the core net profit declined by 71% due to the
higher prices of raw materials, which eroded its margins.
Outlook Global
industry uncertainties remain as the main challenge for Ann Joo as the global
steel industry growth is expected to be lacklustre due to an oversupply
situation and also a slower demand growth from China.
Nonetheless, the
domestic steel demand is supported by the execution of sizeable projects and
hence, we reckon that there will be spillover demands from potential projects
such as MRT, conveyor belt and jetty portion of the Vale site, Manjung
expansion as well as the Iskandar project in Johor Bahru, which should benefit
Ann Joo’s topline in 2H12.
Change to Forecasts
However, we have cut
our FY12-13E estimates by 28% and 26%, to RM76.0m and RM98.1m, respectively, as
we assumed higher scrap prices and operating cost.
Rating Downgraded to
UNDERPERFORM
Valuation We
revised our target price lower to RM1.32 (RM1.62 previously) after our earnings
adjustments above and a rollover of the valuation to FY13E with 7.0x PER.
Risks Volatile scrap prices and slower than expected
global demand.
Source: Kenanga
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