Ann Joo’s JV with another steel giant to result in positive synergies
KUALA LUMPUR: Ann Joo Resources Bhd’s (Ann Joo) joint venture (JV) with another steel giant is set to result in positive operational synergies, analysts acknowledge in a company update following the announcement.
In a Bursa Malaysia filing, Ann Joo’s board of directors announced that the group had on Oct 7, 2019 entered into a memorandum of understanding (MoU) with Southern Steel Bhd (Southern Steel) for the formation of a strategic alliance through a JV company in relation to their long product steel manufacturing businesses.
“Management targets to complete the corporate exercise by the first half of current year 2020 (1HCY20), implying that earnings contribution would only start to kick in after that.
“Hence, we are not overly excited for the near term,” the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said.
“However, we acknowledged that the forming of the JV between the two parties will bring in positive operational synergies such as cost saving, improved operational efficiency, economies of scale and expertise from both parties.”
Kenanga Research did not change its earnings estimate for now as the development is only at MoU stage.
“As such, the research arm’s earnings forecasts for 2019E and 2020E were at a core net loss of RM31 million and core net profit of RM4 million, respectively.
“If it materialises, the JV earnings will impact only after 1H20.
“However, we note the significant impact to Ann Joo if the JV materialises given that Southern Steel had been a loss maker in the last three quarters ending its latest financial year ending June with a net loss of RM119 million.