Period 1QFY12/3MFY12
Actual vs. Expectations
Below ours and the consensus expectations.
The company reported a net profit of RM4.6m (after adding
back inventories write-down of RM5.6m), which only made up around 4% of both
our estimated net profit of RM128.4m and that of the consensus’ forecast of RM108.7m respectively.
Dividends No dividend was declared.
Key Result Highlights
The 1Q12 core earnings dropped by 59% to RM4.6m from
RM11.2m, mainly due to the initial start-up cost of the blast furnace
operations.
Nonetheless, the group managed to record a higher sales
volume due to better domestic demand for its manufacturing and trading division,
which saw higher revenue QoQ (+22%).
YoY, the bottom line, however, fell by 89% due to the higher
prices of raw materials, which eroded its margins.
Outlook Negative.
We expect a slower 1H12 due to lacklustre demand in the
international market as the longdrawn European crisis caused customers to delay
their purchases.
Furthermore, the oversupply of steel in China could have
exacerbated the situation.
That said, we reckon that there will be spillover demands
from potential projects such as KLIA 2, conveyor belt and jetty portion of the
Vale site, the Manjung expansion as well as the Iskandar project in Johor
Bahru, which should benefit Ann Joo in 2H12.
Change to Forecasts
We are reducing our earnings for FY12 by 17.3% as we tweaked
our scrap price assumptions.
However, we maintain our FY13 numbers.
Rating MAINTAIN MARKET PERFORM
Sector driven call.
Valuation We have reduced our target price from RM1.96
to RM1.62 based on an unchanged FY12E PER of 8.0x.
Risks Volatile scrap prices.
Source: Kenanga
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