Ann Joo’s forecasts left unchanged despite recent slide in share prices

KUALA LUMPUR: Ann Joo Resources Bhd’s (Ann Joo) forecasts have been left unchanged by analysts despite the recent slide in the group’s share price.

According to AmInvestment Bank Bhd (AmInvestment Bank), the recent slide in Ann Joo share price was largely

triggered by the decline in Chinese steel prices.

“Steel prices in China have dropped approximately 20 per cent month on month in January 2018 due to price correction from a high base in December 2017 (RMB4,900 per tonne equivalent to RM3,000 per tonne),” the research firm said.

AmInvestment Bank recalled that steel prices shot up in December 2017 due to the Chinese government’s Winter Policy (production curbs between December and March to reduce pollution during the winter season).

It noted that currently, steel prices in China are hovering around RMB4,000 per tonne (RM2,500 per tonne).

“We make no changes to our forecasts as we do not expect steel prices in China to fall further from the current levels as demand is still strong locally in China coupled with further steel sector reforms that will reduce steel production,” AmInvestment Bank said.

The research firm also maintained its assumptions for average blended steel average selling price (ASP) per tonne of RM2,000, RM2,140 and RM2,250 in financial year 2017-2019 forecast (FY17-19F) respectively, and volume growth projections of three per cent, five per cent and five per cent in FY17-19F respectively.

This was on the back of stronger domestic demand for steel, particularly, from major infrastructure projects.

Overall, AmInvestment Bank continued to like Ann Joo because of the group’s dominant position in the local steel market with an estimated market share of 20 per cent.

The research firm also liked Ann Joo given the sustained steel prices in the international market due to the phasing out of

obsolete steel production capacity in China, while local steel prices will be further supported by safeguard duties on imported steel till April 2020.

AmInvestment Bank further highlighted it continued to prefer Ann Joo due to the rising local demand backed by the rollout of infrastructure projects and cost optimisation in production which enables the group to realise better margins than its competitors.