- Maintain
BUY on Ann Joo Resources with our fair value raised slightly to RM1.86/share
(previously: RM1.82/share) on an unchanged target P/BV of 0.9x – as we update
for FY12 numbers. This pegs the stock at the low end of its historical band of
0.7x-1.6x.
- Ann Joo
returned to the black in 4QFY12 with a net profit of RM9.9mil vs. a net loss of
RM23mil in 3QFY12. The improvements were aided by a reversal in inventory
writedown (RM34mil) and more importantly, improvements in the efficiencies at
its blast furnace (BF) plant.
- FY12 net
loss of RM19mil was lower than the deficit of RM25mil that we had expected,
although it disappointed the street’s net profit forecast of RM6mil.
- After a
tough FY12, we expect a belated recovery in Ann Joo’s FY13F performance,
particularly in the 2H. As such, we project the group to swing back to the
black with a RM40mil net profit for FY13.
- Firstly,
the rebound in regional input prices (iron ore - +50%; scrap: +13%) in January
vs. the lows of September 2012 may well have preceded a new cyclical recovery
in semi-finished/end steel prices, albeit with a lag.
- Secondly,
the Malaysian government’s decision to proceed with anti-dumping duties on
imported wire rods from select countries effective from 20 February is another positive
step – although enforcement is key.
- This –
coupled with a revival of Chinese infrastructure spending – could help mitigate
the threat of cheap wire rods into the region, including China. And, Ann Joo is
a key beneficiary with wire rods accounting for up to 30% of its product mix.
- Thirdly,
domestic steel demand would likely accelerate post-elections. To be sure, our
channel checks indicate that local rebar prices have moved up just before the Chinese
New Year break.
- Above
all, the stock is trading at a deep disconnect vis-avis its fundamentals (37%
discount to its FY12 book value). We believe this is unjustified.
- As one of
only two BF players within ASEAN, Ann Joo’s expanded capacity (up to 1.1mil
tonnes p.a.) puts the group in good stead to benefit from rising steel prices.
- Due to
this, we also do not discount Ann Joo making strategic moves to acquire rolling
mills within ASEAN to feed its expanded upstream capacity – once the BF mill’s operations
are stabilised (current utilisation: ~70%).
Source: AmeSecurities
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