Period  3Q13/9M13

Actual vs. Expectations Ann Joo Resources (AnnJoo)’s 9M13 core earnings of RM27.1m is broadly inline with our but below consensus estimates, making up 87% and 52% of ours and streets’ estimates, respectively.

Dividends  No dividend was declared, as expected

Key Result Highlights

 9M13 vs. 9M12: YoY, AnnJoo’s core earnings performance of RM27.1m was better as compared to a core loss of RM56.2m in 9M12, despite the slower sales of RM1476.1m (-12%), due to better cost structure (i.e. cheaper raw materials) and lower plant utilisation rate from AnnJoo in order to achieve better efficiency.

 3Q13 vs. 2Q13: QoQ, AnnJoo’s core earnings fell by 57%, from RM11.4m to RM4.9m despite a marginal increase of 1% in revenue. The higher revenue was due to higher sales tonnage in both local and international market particularly billets and wire rods. However, core earnings were lower due to the competitive pricing on these two products which only command a very thin margin, especially in the international market. We understand that the move in selling its billets internationally despite razor-thin margins was to pare down its inventories overhang.

Outlook  Management has turned very cautious on the outlook of the industry due to the influx of Chinese steel product in the local market coupled with the uncertainties in the global market, volatility in foreign exchange rates, and the absence of any action from China to curb the current oversupply situation.

Change to Forecasts No changes to our earnings forecast at this juncture, as we believe AnnJoo’s performance near-term would be rather flat as given the bleak steel market outlook.

Rating Maintain MARKET PERFORM

Valuation  We are maintaining our target price of RM1.31 based on 0.5x PB ratio to its FY14 BVPS.

Risks to Our Call Volatile scrap prices and a slower-than-expected global demand.

Source: Kenanga