KUALA LUMPUR (Aug 30): Shares of Ann Joo Resources Bhd (KL:ANNJOO) slipped on Friday to their lowest in 21 months, as net losses at the steel company widened in the second quarter.
Ann Joo fell as much as 4.2% or 3.5 sen to 94 sen, its lowest since November 2022. The stock was trading at 94.5 sen at 9.30am, giving the company a market capitalisation of RM547 million. Trading volume totalled 429,000 shares so far.
Ann Joo recorded a core net loss of RM55.8 million for the first half ended June 30, 2024 (1HFY2024), which fell short of TA Securities’ expectations of a full-year loss of just RM20.8 million, but was still lower than the consensus full-year net loss projection of RM76.9 million.
TA Securities cautioned that Ann Joo, which primarily engages in the manufacturing and trading of steel and related products, could face further losses in the third quarter ending Sept 30, 2024 (3QFY2024).
The ongoing downturn in China’s property sector and weaker manufacturing activities are expected to continue weighing on steel demand and average selling prices, the house noted.
The house trimmed its target price (TP) for Ann Joo to RM1.35 (from RM1.64 previously), while maintaining its 'buy' recommendation on the counter, anticipating a gradual improvement from 4QFY2024.
"We now expect the group to report a core net loss of RM63.1 million in FY2024. However, we forecast a turnaround, with profits of RM62.9 million in FY2025 and RM72.1 million in FY2026," TA Securities said in a note on Friday.
Further, the outlook for FY2025 may be bolstered by the expected launch of the Penang Light Rail Transit (LRT) project, where Ann Joo is well positioned as a key supplier, according to TA Securities. The company’s competitive pricing and strong market presence are expected to provide an advantage, the house added.
"The revitalisation of the property sector, with more high-rise project launches and increased construction activity, should bolster demand for steel products," the house said.
CIMB Securities, the other research house with a 'buy' call on Ann Joo, maintained its TP at RM1.50.
Ann Joo shares have declined 11.86% year-to-date, reflecting investors' concerns over its earnings outlook.
However, CIMB expects Ann Joo to start turning around in 4QFY2024, benefiting from lower coke prices following the expiration of a long-term supply agreement.
The house sees upside potential in Ann Joo’s earnings for FY2025, driven by the commercialisation of Perfect Channel’s wire rod operations, initial contributions from the East Coast Rail Link (ECRL) electrification contract, and an expansion in downstream value-added offerings, such as the supply of steel sheets for the automotive industry.
On Thursday, Ann Joo reported to Bursa Malaysia that its net loss widened to RM44.91 million in 2QFY2024, compared to a net profit of RM643,000 a year earlier, while revenue dipped slightly by 0.43% to RM591.09 million from RM593.64 million.
The loss was attributed to depressed profit margins due to lower selling prices of various steel products, and higher overhead costs associated with a temporary plant shutdown, which amounted to RM9.39 million in 2QFY2024.
Ann Joo recognised an allowance for inventory write-downs of RM5.10 million in 2QFY2024, compared to a reversal of RM14.59 million in 2QFY2023. It also recorded one-off gains from the disposal of property, plant, and equipment amounting to RM4.93 million, and a gain on the disposal of investment properties of about RM270,000 million in 2QFY2023.