• Not-Rated. Ann Joo Resources Berhad (Ann Joo) FY23 core LATAMI of RM168.9mn was below our in-house expectation, making only 82.6% it surpassed market expectations of 188.1%. The lower-than-expected loss projection was resulted from better quarterly ASPs during 4QFY23. 4QFY23 revenue decline 5.1% QoQ due to lower sales tonnage. On the same note, the group recorded a core LBT of RM71mn (vs 3QFY23: core LBT of RM78.1mn). We are maintaining the FY24F loss assumption and FY25F earnings forecast. Additionally, we introduced an FY26F earnings forecast of RM17.4mn, with a 0.6% profit margin. We anticipate a persistently challenging outlook for the steel industry following 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. In 4QFY23, coking coal price surged by 26.5% QoQ, adversely affecting the operating margin. To minimise the impact of rising material prices, the group recently changed its contract strategy with the supplier to negotiate more favourable pricing.

• Earnings Revision. We are maintaining the FY24F loss assumption and FY25F earnings forecast. Additionally, we introduced an FY26F earnings forecast of RM17.4mn, with a 0.6% profit margin.

• Outlook. We hold the perspective that the bearish sentiment will persist in the steel market due to subdued domestic demand, imbalanced steel supplydemand dynamics from China, and challenging global economic conditions. Margins are likely to face ongoing pressure due to higher operating costs. The absence of large-scale domestic infrastructure projects adds another layer of challenge. Also, China's increasing supply may lead to a glut condition led to the imbalance in supply-demand dynamics. In summary, we anticipate prolonged challenges for Ann Joo given the less-than-favourable operating conditions.

Source: BIMB Securities Research - 29 Feb 2024