KUALA LUMPUR: Ann Joo Resources Bhd's (AJR) net profit in its second quarter ending June 30, 2017, dipped by 69% year-on-year to RM28.6mil, broadly within expectations.

The profit decline was owing to a soft patch with lower sales tonnage and average selling price due to weak domestic demand, high finance costs and recognition of long-term incentive plan (LTIP) expense, a high base for net profit in the previous corresponding quarter, and margin contraction in the current quarter.

AmInvestment Research says earnings visibility for the company remains good, underpinned by AJR capitalising on ongoing structural reforms in China to curb steel production as well as local infrastructure projects kicking off in the second half of this year.

The research house also notes that AJR remains one of the dominant local steel players with 20% market share and average selling price is expected to improve with imposition of safeguard duties on imported steel till April 2020. 

AJR is also optimising production costs and maintaining better margins over its competitors.

"Our forecasts assume average steel prices of RM1,890, RM2,022 and RM2,164 in FY17-19F. For every RM100/tonne variation in our steel price assumption, our FY18F net profit forecast will change by 19%," says AmInvestment Research.

It maintains its "buy" call, forecasts and fair value of RM3.86 based on 10x FY18F fully diluted earnings per share.