• Overview. Ann Joo Resources Berhad (Ann Joo) 4Q22 revenue of RM795mn improved by 4.5% QoQ and 7.5% YoY respectively, thanks to higher sales tonnage despite lower domestic and export steel prices. Core LATAMI widened to RM133.8mn in 4QFY22 however as compared to LATAMI of RM128mn in 3QFY22 and PATAMI of RM16.9mn same period a year ago due to higher production costs as a result of higher materials and fuels costs particularly coking coal (+12% QoQ). For full year FY22, revenue surged by 26.7% YoY on the back of core LATAMI of RM86.3mn (versus FY21: Core PATAMI of RM224.5mn). The uninspiring earnings were due to: i) escalating raw materials and fuel costs, and ii) higher-than-expected finance cost.

• Key highlights. Domestic steel bar price touched a one-year low at RM2,602/mt during 4QFY22 (versus 3QFY22: RM2,730/mt amid muted construction activities in local market. On the raw materials, despite marginal decline in iron ore (-5% QoQ) and scrap (-2% YoY) prices, price for coking coal jumped by 12% QoQ no thanks to supply constraints from Australia due to heavy rainfall as well improving demand from China after their border was re-opened where China unofficially ban the imports for thermal and coking coal. Management guided FY23 capex would range between RM50-60mn largely to be allocated for its new Green Technology division which comprise solar energy ad waste management businesses, as well as minor allocation for plants’ maintenance works.

• Outlook. Looking forward, the Group is cautious on raw materials prices which may squeeze its profitability. Moreover, demand for domestic construction steel is expected remained gloomy amid lack of mega projects. On top of that, Ann Joo is waiting catalyst from the upcoming 2023 Chinese presidential election which scheduled to be held in March 2023 hoping for better China government policies that may boost the industry and hence boosting demand for steel. All in all, we expect a tough time to persist for Ann Joo as global headwinds may continue to be a dampener to the industry, affecting overall market dynamics.

• Valuation. Ann Joo is currently trading at a forward P/BV 0.56x which is at 18.8% discount against a 3-year average of 0.69x. Ann Joo is attractive priced at this juncture.

Source: BIMB Securities Research - 28 Feb 2023