Posted on 08 Feb 2017
Rising steel prices and the lower cost of coal are positive for steel maker Ann Joo Resources Bhd, UOBKayHian Research Malaysia said.
The research house anticipates a slightly better financial performance for the company in the fourth quarter of 2016, with core net profit ranging between RM25mil-RM30mil.
It predicts a better year ahead as January’s average steel prices remained high at RM2,275 per tonne while coal prices have dropped lower since mid-November 2016.
To note, the average steel price of last month rose by 52%, on a year-on-year basis.
On the other hand, coal price fell by 4.6% month-on-month to US$84.10 per tonne.
“We expect results to be slightly better quarter-on-quarter mainly due to improved steel average selling price as well as higher sales volume which will mitigate the impact of higher raw material prices,” stated UOBKayHian.
The research house also added that Ann Joo’s generous capital management may lead to a dividend yield of 4.8% for 2016. As for this year, UOBKayHian projected the dividend yield to hit 5.1%, backed by its healthy cash flows and fast declining gearing.
“We think this is achievable as Ann Joo is set to implement the cut-and-bend service which in turn allows it to participate in larger projects,” noted the research house.
UOBKayHian maintained Its “buy” recommendation on Ann Joo’s shares, with a target price of RM2.60.
Ann Joo shares closed 0.41% down to RM2.45 at closing yesterday, with 3.66mil shares traded.
UOBKayHian said Ann Joo’s financial outlook for 2017 will be boosted by high average steel price, falling coal prices and industry consolidation in China.
Ann Joo is primarily involved in the maufacturing and trading of steel and steel-related products.
