Posted on 27 Sep 2016
The latest provisional safeguard measures introduced by the government is expected to boost Ann Joo Resources Bhd’s earnings.
In a report, Kenanga Research said the move would boost the steel miller’s steel re-bars average selling price (ASP) by about 8%. Based on this assumption, it expects the steel miller’s FY2017 forecast earnings to increase by 20%.
Ann Joo derives 60% of its manufacturing revenue from steel re-bars.
Last week, the government had introduced safeguard duties of 13.9% for steel coils and 13.4% for steel re-bars following the plight of many domestic steel manufacturers whom have been experiencing margin compression or losses, especially due to dumping activities by the mainland Chinese players.
Dumping activity is the move by a company to sell its products at unfairly low prices in a foreign market, compared to its home market.
This safeguard rate will be imposed on top of the existing 5% import duty and is expected to effectively balance out the playing field between local manufacturers and the Chinese players, noted the research firm.
Currently, local steel prices is highly dictated by Chinese steel prices due to local steel industry having more than 50% imports. Prices of locally produced steel also carry a premium of about RM150 compared to the ones imported from China.
The duties was imposed on a list of 40 exporting countries from yesterday.
Despite the upgrade in forecast earnings for FY2017, Kenanga Research has decided to maintain the company’s projected earnings for FY2016.
“We make no changes to the earnings because the domestic market has sufficient steel supply as local steel importers have been stocking up on inventories, anticipating the safeguard measure approval.
“Gradual steel price increase for the remaining short period of three months is also expected to have little impact towards our FY16 ASP,” said Kenanga Research in its report.
The research house has upgraded its call on Ann Joo to “outperform” and increased its target price to RM2.24.
Its shares closed one sen up to RM2.09 with 3.4 million shares traded at the end of the day.
