Period  4Q13/FYM13

Actual vs. Expectations Ann Joo Resources (AnnJoo)’s FY13 core earnings of RM38.1m is above both consensus and our estimates, at 138% and 158%, respectively.

 This is due to better sales performance in both domestic and international markets despite weak prices, and improvements in operational efficiency.

Dividends  No dividend was declared, as expected

Key Result Highlights FY13 vs. FY12: YoY, AnnJoo’s revenue of RM640.6m in FY13 improved 62% over the FYM12 sales of RM395.8m due to higher sales tonnage in both its Manufacturing and Trading Divisions.

 Core earnings performance of RM11.0m was 56% better than its RM7.0m core earnings in FY12 due to better cost structure (i.e. cheaper raw materials) and improving cost efficiency in its plant operations.

 4Q13 vs. 3Q13: QoQ, AnnJoo’s revenue in 4Q13 rose 29% QoQ from RM498.4m to RM640.6m as a result of reduced inventory holding in its Manufacturing division and aggressive marketing strategies in its Trading Division.

 Core earnings improved by 124% QoQ from RM4.9m in 3Q13 to RM10.8m in 4Q13 on better margins coming from improved plant efficiency.

Outlook  Management remains cautious on the outlook of the industry due to the sustained influx of Chinese steel product in the local market, although there are recent positive developments in terms of government regulation that may moderately curb dumping activities. Even so, there is little concrete evidence of action from China to curb the current oversupply situation. The situation is further aggravated by the uncertainties in the global market, volatility in foreign exchange rates, and potentially lacklustre property development industry.

Change to Forecasts No changes to our earnings forecast at this juncture, as we believe AnnJoo’s performance would be rather flat given that we expect the continuing weakness in domestic steel prices to persist in the near-term.

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