• Not-Rated. Ann Joo’s 9MFY23 core LATAMI of RM103.8mn surpassed our inhouse and consensus estimates due to a decline in ASP as well as weaker sales tonnage. In 3QFY23, revenue inched up 7.6% QoQ, attributed to higher export tonnage despite a decline in PBT margin (-10.7ppts QoQ). We revised our FY23F loss assumption, expanding it from RM103.7mn to RM204.4mn. Additionally, we reduced the FY24F core PATAMI forecast from RM22.1mn to core LATAMI of RM69mn and lowered the FY25F earnings forecast by 9.4% to RM38.7mn. We expect the negative outlook to persist in the steel market until FY24, driven by lacklustre domestic demand, unfavourable supply-demand factors originating from China, and the challenging global economic circumstances. We have a non-rated recommendation on the stock.

• Key Highlight. During 3QFY23, the steel bar price stood at RM2,676/mt, declining by 3.1% QoQ. However, raw material prices, such as iron ore and coking coal, increased by 2.7% QoQ and 8.2% QoQ, respectively, despite a marginal decline in scrap prices (-4.5% QoQ). We understand that the rise in iron ore and coking coal prices was due to China’s strong buying interest amid excessive steel production.

• Earnings Revision. We revised our FY23F loss assumption, expanding it from RM103.7mn to RM204.4mn. Additionally, we reduced the FY24F core PATAMI forecast from RM22.1mn to core LATAMI of RM69mn and adjusted the FY25F earnings forecast downward by 9.4% to RM38.7mn. These adjustments were made in response to changes in steel bar prices and margin assumptions.

• Outlook. We anticipate the bearish sentiment to persist in the steel market until FY24 due to subdued domestic demand, imbalanced supply-demand dynamics from China, and challenging global economic conditions. Higher operating costs are expected to continue exerting pressure on margins. The absence of large-scale domestic infrastructure projects adds to the challenges. China's increasing supply may lead to a glut condition, further contributing to the imbalance in supply-demand dynamics. Overall, we expect tough times to persist for Ann Joo given the less-than-favourable operating conditions.

Source: BIMB Securities Research - 28 Nov 2023