ANNJOO (6556) : Ann Joo Resources - Better circumstances ahead
Target RM1.25 (Stock Rating: HOLD)
Ann Joo's 9M14 core net profit made up 94% of our full-year forecast but was 12% ahead of consensus. The results were broadly in line as we expect 4Q to benefit from continued operating efficiencies and lower iron ore prices, which remain Ann Joo's major advantages. However, dumping from China had worsened in 3Q14 and could persist due to pent-up domestic steel demand pre-GST in Apr 15. We lift our FY16 EPS as sustaining EBITDA margin at 4-5% looks reachable. Our target price rises as we roll over our valuation to end-2015, still pegged to 10.3x P/E (30% discount to historical average). Upgrade from Reduce to Hold. Sustained operating efficiencies and depressed raw material prices should support the stock; but external challenges remain.
Falling raw material prices and plant efficiencies in 9M14
Annualised 9M14 core net profit made up 94% of our full-year forecast but was 12% above consensus. Operating performance was broadly in line, with sustained manufacturing efficiencies and falling iron ore prices as key drivers to a better 4Q. Our 5.9% EBITDA margin forecast for FY14 should reflect iron ore, as one of the key input components, to stay below US$80-90 tonne, in line with depressed global steel demand and lower oil prices. No dividends were declared, which was expected.
Dumping got worse in 3Q14
The dumping of steel wire rods from China has gotten worse YTD, with volumes accounting for more than 50% of the monthly 200k MT domestic steel consumption. With the pent-up demand for building materials prior to the implementation of GST in Apr 15, dumping is unlikely to subside. What is encouraging is that although there has been no news since 2Q14 about the possibility of certain "trade actions", management notes that the government is showing signs of considering various means to assist the ailing domestic steel industry and is likely make positive decisions in the next two months. This may include reinstating the 5% import duty exemption.
Better positioned to battle the tough market
We see Ann Joo's superior manufacturing efficiencies, supported by falling material prices, as its key strength. However, a major sector-wide recovery would only be clearer with stricter government intervention.
Source: CIMB Daybreak - 27 November 2014, Full PDF Report
Target RM1.25 (Stock Rating: HOLD)
Ann Joo's 9M14 core net profit made up 94% of our full-year forecast but was 12% ahead of consensus. The results were broadly in line as we expect 4Q to benefit from continued operating efficiencies and lower iron ore prices, which remain Ann Joo's major advantages. However, dumping from China had worsened in 3Q14 and could persist due to pent-up domestic steel demand pre-GST in Apr 15. We lift our FY16 EPS as sustaining EBITDA margin at 4-5% looks reachable. Our target price rises as we roll over our valuation to end-2015, still pegged to 10.3x P/E (30% discount to historical average). Upgrade from Reduce to Hold. Sustained operating efficiencies and depressed raw material prices should support the stock; but external challenges remain.
Falling raw material prices and plant efficiencies in 9M14
Annualised 9M14 core net profit made up 94% of our full-year forecast but was 12% above consensus. Operating performance was broadly in line, with sustained manufacturing efficiencies and falling iron ore prices as key drivers to a better 4Q. Our 5.9% EBITDA margin forecast for FY14 should reflect iron ore, as one of the key input components, to stay below US$80-90 tonne, in line with depressed global steel demand and lower oil prices. No dividends were declared, which was expected.
Dumping got worse in 3Q14
The dumping of steel wire rods from China has gotten worse YTD, with volumes accounting for more than 50% of the monthly 200k MT domestic steel consumption. With the pent-up demand for building materials prior to the implementation of GST in Apr 15, dumping is unlikely to subside. What is encouraging is that although there has been no news since 2Q14 about the possibility of certain "trade actions", management notes that the government is showing signs of considering various means to assist the ailing domestic steel industry and is likely make positive decisions in the next two months. This may include reinstating the 5% import duty exemption.
Better positioned to battle the tough market
We see Ann Joo's superior manufacturing efficiencies, supported by falling material prices, as its key strength. However, a major sector-wide recovery would only be clearer with stricter government intervention.
Source: CIMB Daybreak - 27 November 2014, Full PDF Report
