KUALA LUMPUR (April 5): Ann Joo Resources Bhd shares jumped 6.67% in the morning session today after AmInvestment Bank Research upgraded the stock to a "buy" at RM2.40 with a fair value of RM3.20 based on 10x FY18F diluted EPS, average of three mid-cycles PE multiples between Jan 12 to Sept 13, Jun 5 to Jun 8 and Sept 10 till present.

Ann Joo rose 16 sen to RM2.56 with 597,800 shares traded.

In a note today, the research house forecast the global steel demand to trend marginally upwards by 0.5% for FY17F and 1% for FY18F from 1.5 billion metric tonnes (MT) currently, underpinned by economic growth in some regions of the world, especially in emerging economies, mainly driven by the construction sector.

It said steel demand in Malaysia is expected to trend upwards, supported by the country's resilient growth and domestic spending into infrastructure projects.

Meanwhile, the research house said global production supply is expected to remain flattish at 1.6 billion MT for FY17F/FY18F, with an estimated 2.3 billion MT annual capacity and average capacity utilisation of circa 70%.

It said the ongoing cuts in China steel production due to the recent glut has shown progress and the Chinese government plans to trim it further by 50 million MT of its annual capacity of 1.1 billion MT and current production level circa 800 million MT.

"Our projection for global steel ASP (average selling prices) (ex-work) remained subdued at between US$500-550 MT, given the ongoing economic reforms in China.

"We continue to like AJR (Ann Joo) because: 1) it is one of the dominant local steel players, controlling 20% of the market share; 2) ASP is expected to improve with the ongoing China reforms to cut steel supply while local demand is expected to rise by FY17 and FY18, particularly from infrastructure projects; and 3) cost optimisation in the production cost, which enables AJR to maintain better margin than its competitors.

"Hence, we recommend a Buy call at a fair value of RM3.20," it said.