• Stronger prospects ahead. ANNJOO’s share prices surged 95% i n 3M and 212% YTD, respectively amid strong turnaround in the overall steel sector, premised on the following recent developments: (a) Additional safeguard duty announced on 23 Sep 16 on top of the existing 5% import duty (13.42% for imported steel bars and 13.90% for imported wire rods); (b) China’s depleting steel invent ory indicating steady demand and stabilizing steel prices; (c) Closure of loss-making steel mills in China, and (d) China governments’ strong commitment in reducing steel production capacity through consolidation of steel groups coupled with financial support of RMB100b for worker retrenchment schemes.

• Meanwhile, share prices also witnessed a further boost along with other steel stocks following the announcement of temporary cessation of Megasteel’s operations, which woul d benefit CRC pl ayers as it opens up the opportunity for them to source HRC (a raw material for CRC) from alternative cheaper providers.

• Positives largely priced in. ANNJOO’s share prices rallied to a fresh 52- week high of RM2.18 yesterday before paring the gains to end 1 sen higher at RM2.09 on profit taking. Currently, ANNJOO is trading close to its 10-year average high of 1.02x P/BV, which is also 47% higher than peers and 57% higher than its 10-year average of 0.65x.

• Hence, we opine that the recent massive price surge has triggered concern about price sustainability, compounded by the steeply overbought (hourly/daily/weekly) indicators. In addition, the gravestone doji star patterns in daily and weekly charts are bearish reversal signals. From a technical perspective, we advocate Take profit with an immediate support near RM2.00.

• A decisive breakdown below RM2.00 will trigger further decline towards RM1.94 (10-d SMA) and RM1.86 (20-d SMA). On the flipside, any rebound will see upside capped at RM2.18, RM2.27 (13 Feb 2012 high) and RM2.40 levels.

Source: Hong Leong Investment Bank Research - 27 Sep 2016