Ann Joo’s 1H16 core net profit surpasses expectations
KUCHING: Ann Joo Resources Bhd’s (Ann Joo) first half of 2016 (1H16) core net profit (CNP) has surpassed the research arm of Kenanga Investment Bank Bhd’s (Kenanga Research) expectations and it has turned positive on the outlook for the steel sector.
According to Kenanga Research, Ann Joo’s 1H16 CNP of RM72.5 million came in above its and consensus expectations making up 107 per cent and 426 per cent of estimates, respectively.
The research arm noted that the positive variance was due to higher- than- expected margins from better margin product mix, lower-than-expected raw material costs and lower- than- expected effective tax rate.
Kenanga Research derived its CNP after stripping off reversal of inventories written down to net realisable value of RM19.3 million and unrealised forex gain of RM5.7 million.
“A six sen special dividend was also declared, surpassing our initial 0.5 sen assumption,” it said.
Kenanga Research turned positive on the steel sector’s outlook premised on several factors such as China’s depleting steel inventory, closure of lossmaking steel mills in China and China governments’ initiative in reducing steel production capacity coupled with its construction
A six sen special dividend was also declared, surpassing our initial 0.5 sen assumption.
activity set to pick up from a slow quarter due to the rainy season previously.
Consequently, the research arm expected Ann Joo’s steel average selling price (ASP) assumption of RM2,000 per metric tonne (MT) to be sustainable due to fewer imports and less steel dumping activities from China in the midto-near term underpinned by the reasons above.
Post-results, Kenanga Research upgraded financial year 2016-2017 estimate (FY16-17E) earnings by 85-93 per cent after adjusting for lower raw material prices, a higher US$RM rate of 4.1 (previously 4.0) which was inline with its in-house target, and lower financing costs in view of pared down debt in the second quarter of 2016 (2Q16).
Post-earnings upgrade, Kenanga Research also increased its target price to RM1.69 per share, from RM1.23 per share previously.
The research arm noted that the valuations were also justifiable due to Ann Joo’s capability to produce own billet and not relying on imports unlike other local steel players, commencement of cut and bend service allowing Ann Joo to secure a wider range of projects and the expected increase in steel demand locally in view of the pick-up of construction activities from mega infrastructure projects in FY17.
Kenanga Research