Journey to Wealth
Ann Joo Resources - 3Q12 below expectations
Period 3QFY12/9MFY12
Actual vs. Expectations Below ours and the consensus expectations.
For 9M12, the company reported a core net loss of RM19.6m (after adding back the unrealised foreign exchange loss of RM9.4m). The result was far off ours and the street's FY12 full-year estimates of RM76.0m and RM59.7m respectively.
Dividends No dividend was declared.
Key Result Highlights QoQ, Ann Joo posted a staggering core net loss of RM47.1m (after stripping off an exceptional gain of RM24m) in 3Q12 compared to a profit of RM17.3m in 2Q12 on a lower recorded revenue of RM468.9m (-22%), which was attributed to the decrease in its export sales tonnage as it was affected by the sharp decline in international steel prices and demand.
YoY, the group recorded a core net loss of RM19.6m in 9M12 on the back of a lower revenue RM1684.4m (-3%) and the recognition of an allowance for inventories written down to net realisable value of RM57.8m. The lower average selling price also eroded its margins.
Outlook The 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 will be supported by the execution of sizeable projects and hence, we reckon that there will be spillover demand from potential projects such as MRT, conveyor belt and jetty portion of the Vale site, the Manjung expansion as well as the Iskandar project in Johor Bahru, which should benefit Ann Joo's trading division in the short term.
Change to Forecasts However, we have cut our FY12-13E estimates by 64% and 54%, to RM27.3m and RM45.5m after factoring in its lower average selling prices and higher operating cost in our forecasts.
Rating Maintain UNDERPERFORM
Valuation We have revised our target price lower to RM1.17 (RM1.32 previously) after changing our valuation method to using a 0.5x PB ratio to its FY13 BVPS from the previous 7.0x PER valuation on its FY13 EPS.
Risks Volatile scrap prices and a slower than expected global demand.
Source: Kenanga
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