Posted on 18 Nov 2016
While drop in manufacturing sales volume, softer steel bars average selling price (ASP) and higher effective tax rate of 42% have caused Ann Joo Resources Bhd (Ann Joo) to register a sequentially poorer financial results in the third quarter of financial year 2016 (3QFY16), it is expected to perform better moving forward.
Despite the weak performance by the steel producer, Maybank IB Research said on Friday that the results are within expectations.
“We think earnings in 4Q could be stronger on the recent rally in ASPs and potential margin expansion as Ann Joo locked in its fuel requirements just before the sharp run-up in prices,” said Maybank IB Research.
Ann Joo remained in the black with core net profit of RM23mil in 3QFY16, falling by 75% compared to the immediate preceding quarter. This brought its core net profit for the first nine months of financial year 2016 (9MFY16) to RM97mil, which made up 77% of Maybank IB Research full-year forecasts.
The research house said that Ann Joo’s net gearing remained at a comfortable level of 0.8 times, allowing the company to hold back its sales during poor ASP periods in 3QFY16.
Maybank IB Research reiterated its “buy” call and target price at RM2.50.
Meanwhile, Kenanga Research noted that it will make no changes to its FY16-17 forecasts on the back of unchanged steel bar ASPs of RM1,750 per tonne and RM1,890 per tonne for FY16 and FY17, respectively.
No dividends were declared for the quarter, as expected by the research house.
Kenanga Research has maintained its “outperform” recommendation, with an unchanged target price of RM2.24 based on 7 times FY17 price-to-earnings ratio.
