Posted on 08 Aug 2008
Ann Joo Resources remains an outperform stock on CIMB
Equities Researcha€?s list as potential share price triggers include higher 3Q
earnings arising from exports and an improved cost structure once the
mini-blast furnace is in place.
In its research note issued on Friday, it did however, did
not rule out the risk of export curbs on the steel industry.
a€?Taking this into consideration as well as the current
softening of steel prices, we tag a lower target price-to-earnings (P/E) of 8.0
times (10 times previously) to the stock. This more than offset our earnings
revision, pushing our target price from RM5.25 to RM5,a€? it said.
On Thursday, the company said 2Q earnings surged 360% to
RM180.51mil from RM39.26mil a year ago, fuelled by the rising international
steel prices. Revenue rose 92.5% to RM706.5mil from RM366.98mil. EPS were 35.17
sen and it declared an interim dividend of 12 sen per share.
For 1H, its net profit jumped 310% to RM285.45mil from
RM69.51mil while revenue rose 69% to RM1.37bil from RM813.6mil.
CIMB Research said on an annualised basis, Ann Jooa€?s 1H
earnings came in 58% above its forecast and consensus numbers as it had
underestimated the steel price escalation during the quarter, especially for
billets.
The research house said Ann Joo also had a bigger position
in scrap metal, its raw material, than it had earlier estimated.
It said due to the higher-than-expected earnings, it revised
upwards it FY08-10 earnings forecasts by 15-50% by imputing lower average costs
for scrap. Based on the managementa€?s guidance, its average scrap price forecast
was cut from RM650-RM750 per tonne to RM500-RM550.
