- Ex unrealised forex losses, we have trimmed FY12F-14F net
profits by 10%-14% on a more conservative selling price assumption amid a
challenging global macro backdrop. It also takes into account the threat of
dumping by Chinese millers on Ann Joo’s wire rod sales (~30% of the group’s
finished products), as China’s economy slows.
- Not unlike its peers, Ann Joo reported a RM5mil net loss
in 2QFY12. This brought cumulative 1H losses to RM6mil against a net profit of
RM75mil a year earlier.
- Apart from start-up losses for its new blast furnace, we stress
that the losses were largely attributable to an unrealised forex loss of
RM28mil incurred in 2QFY12. Stripping these out, Ann Joo would have made a net
profit of RM34mil at half-time.
- On the flipside, Ann Joo’s topline growth remains intact (+9%
YoY), thanks to improving local demand and higher export tonnage. The group is
refocusing its efforts on the domestic markets, where pricing trends are more
robust than the international markets. Local rebar prices are currently hovering around the
RM2,300/tonne level.
- Apart from PETRONAS, Ann Joo is positioning its trading units
abroad to tap into the booming oil & gas capex cycle. The division remained
in the black at half-time although EBIT margin shrank from 4.9% to 9.3%
(2QFY12: 2.3%).
- The utilisation rate for its blast furnace has risen to
~80%. Management hopes to achieve a scrap/hot metal mix of 50:50 by 4QFY12 from
60:40 at the moment. This is to take advantage of softening iron ore prices,
which have recently dipped below the US$100/tonne mark.
- Even on revised earnings, Ann Joo is still trading below
its 5-year historical PE average of 14x (FY12F-13F FD PE: 5x- 11x) on 0.7x P/B
value. We foresee Ann Joo’s core net profit to rebound by 3.1x to RM121mil in
FY13F, as the fullimpact of its blast furnace would be tangibly felt by then.
- From a strategic standpoint, we advocate Ann Joo as a proxy
to rising building material consumption as the pace of several infrastructure
projects (e.g. Sg.Buloh-Kajang MRT, Klang Valley LRT Extension, KLIA2) start to
pick up.
- We have already seen a re-rating sweeping through the cement
sector, whereby industry leader Lafarge Malayan Cement had reportedly raised
prices by 6% from August 1.
Source: AmeSecurities
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