Ann Joo Resources - FY12 below expectations

kiasutrader

Publish date: Wed, 27 Feb 2013, 11:54 AM

Period 4QFY12/12MFY12

Actual vs. Expectations Below ours and the consensus expectations.

For FY12, the company reported a core net loss of RM48.8m (after stripping off an unrealised foreign exchange gain of RM29.7m). The result was far off ours and the street's FY12 full-year estimates of RM27.3m and RM5.8m respectively.

Dividends No dividend was declared.

Key Result Highlights QoQ, Ann Joo posted an improvement on its 4Q12 core earnings to turn back to a profit of RM7.6m from a staggering loss of RM47.1m in 3Q12. The improvement was mainly due to a better cost structure and the recovery in the market condition, which resulted in a reversal of the allowance for inventories written down to net realisable value of RM34.38m.

For the full year, it recorded a core net loss of RM48.8m (after stripping off the exceptional forex gain of RM29.7m) compared to a profit of RM110.2m in FY11. This was due to a slower sales number of RM2080.6m (-7%) and higher financing costs. The slower sales were mainly attributed to the decrease in its export sales tonnage, which was affected by the sharp decline in the international steel prices and demand.

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, the 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 No changes to our earnings forecast at this juncture. However, we might look at a further downgrade on our earnings later if results continues to disappoint.

Rating Maintain UNDERPERFORM.

Valuation We are maintaining our target price of RM1.17 for now, based on a 0.5x P/B ratio on its FY13 BVPS.

Risks Volatile scrap prices and a slower than expected global demand.

Source: Kenanga

ANNJOO (6556)

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