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Ann Joo Resources - 1H12 below expectations

kiasutrader
Publish date: Thu, 30 Aug 2012, 10:26 AM

Period    2QFY12/1HFY12

Actual vs.  Expectations
 Below ours and the consensus expectations. 

 The company reported a core net profit of RM21.8m (after adding back an unrealised foreign exchange loss of RM27.8m), which only made up around 21% and 24% of our FY12 fullyear estimate of RM106.1m and the consensus' forecast of RM89.3m respectively.

Dividends   No dividend was declared.

Key Result Highlights
 QoQ, 2Q12 core earnings jumped by 278% to RM17.3m from RM4.6m in 1Q12. This was mainly due to the higher recognition of initial start-up cost for its blast furnace operations in 1Q12.  

 YoY, the revenue grew by 9% although its core net profit fell by 47% from RM32.7m. This was due to a lower core net margin of 2.9% (2Q11: 5.8%) attributable to a lower utilisation rate and higher operating expenses. 

 YoY,  the core net profit declined by 71% due to the higher prices of raw materials, which eroded its margins. 

Outlook   Global industry uncertainties remain as the main challenge for Ann Joo as the global steel industry growth is expected to be lacklustre due to an oversupply situation and also a slower demand growth from China. 

 Nonetheless, the domestic steel demand is supported by the execution of sizeable projects and hence, we reckon that there will be spillover demands from potential projects such as MRT, conveyor belt and jetty portion of the Vale site, Manjung expansion as well as the Iskandar project in Johor Bahru, which should benefit Ann Joo's topline in 2H12.

Change to Forecasts
 However, we have cut our FY12-13E estimates by 28% and 26%, to RM76.0m and RM98.1m, respectively, as we assumed higher scrap prices and operating cost. 
 
Rating  Downgraded to  UNDERPERFORM

Valuation    We revised our target price lower to RM1.32 (RM1.62 previously) after our earnings adjustments above and a rollover of the valuation to FY13E with 7.0x PER.

Risks   Volatile scrap prices and slower than expected global demand.  

Source: Kenanga
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