Ann Joo Resources Bhd
(May 28, RM1
Maintain hold with an unchanged target price of RM1.13: In the first quarter ended March (1QFY15), Ann Joo reported a core net profit of RM12.4 million, which is in line with our expectation, accounting for 26% of our FY15 full year forecast.

Our core earnings exclude foreign exchange loss amounting to RM7.1 million. As expected, no dividend was declared for the quarter.

Despite the higher earnings, revenue fell 24% year-on- year (y-o-y) to RM520 million, on the back of lower export tonnage as well as lower average selling prices.

In 1Q, the average price of billets (Commonwealth of Independent State Export) fell 25% y-o-y to US$374 (RM1,361) per tonne. Similarly, the average price of steel bars fell 20% y-o-y to US$470 per tonne.

However, earnings before interest, taxes, depreciation, and amortisation margin improved 2.4%, mainly boosted by improved manufacturing margin on lower material costs.

With the current global overcapacity, especially in China, as well as softening commodity prices, the outlook for the global steel industry will likely remain challenging.

On the local front, while sales volume will be supported by anticipated buoyant construction activities, the impact will be capped by weak international steel prices.

Risks to our recommendation include a significant dip in selling prices as well as a prolonged oversupply. — Affin Hwang Capital Research, May 28

This article first appeared in The Edge Financial Daily, on May 29, 2015.