Ann Joo bullish on prospects of high demand

STEELMAKER Ann Joo Resources Bhd (6556) is bullish on the outlook for this and next year, thanks to the massive pump-priming activities worldwide, with the bulk of the funds being channelled towards infrastructure sector.

Its group executive chairman Datuk Lim Kiam Lam said the tight supply of construction steel and the demand-pull price upswing are expected in the medium term.

"The demand is expected to pick up in the second half of 2010. However, in the immediate term, a lot of correction is expected as the economies are still in early stage of recovery," he told a media briefing after the company's annual general meeting in Kuala Lumpur yesterday.

Lim said the urbanisation and industrialisation in the emerging markets and developing countries, particularly Brazil, Russia, China, Association of South-East Asian Nations (Asean) and Indian sub-continent, were expected to drive up steel demand to even exceed the pre-crisis level of 2007.

He said Ann Joo expected the main export market to contribute 50 per cent to its revenue and the rest from domestic market.

"Our export margin is good. Vietnam is currently our largest export market. It absorbs 60 to 70 per cent of our exports as the country was relatively not affected by the recent financial crisis," he said.

Lim said the company is also eyeing Indonesia as the government has huge plans for infrastructure projects and Sri Lanka, where demand for steel was expected to be substantial.

He said demand in the domestic market was expected to pick up in the second half of the year or early 2011.

"In anticipation of the spike in demand, Ann Joo plans to boost its current capacity to 1.5 million tonnes from 800,000 tonnes per annum by improving efficiency," he said.

Lim said the company is expanding its modern blast furnace, the first in Malaysia, and it is expected to commence operation by the second half of 2010.

"The expansion will not only provide solid growth for the group's business but also an integration of our iron and steel production which will offer synergy for the entire group's operation.

The company, he said, also aimed to be among the biggest in Southeast Asia. - Bernama

Ann Joo Resources: Buy, target price RM4.20

ANN Joo Resources Bhd (6556) is expected to report improved results in its remaining three quarters due to rising steel demand, said AmResearch.

It reported a first quarter net profit of RM41 million on revenue of RM474 million, accounting for 23 per cent of AmResearch's full-year forecasts. The research house believes there are three reasons why Ann Joo shares could see a higher fair value.

Firstly, Ann Joo's management believes that rising scrap prices and the landmark acceptance by Japanese mills of quarterly iron ore pricing terms beginning April may imply stronger steel demand in the coming months. This should improve margins as prices of semi-finished/finished steel products have risen since March.

Secondly, there are signs that demand for local steel is rising as prices of Malaysian steel bars have since risen 20 to 25 per cent to RM2,400/tonne-RM2,500/tonne from about RM2,000/tonne in December 2009.

Lastly, Ann Joo's new blast furnace is on due for cold commissioning by June and it would to buy iron ore from local mines instead of from Australia's BHP Biliton, which would be cheaper.

Read more: Ann Joo Resources: Buy, target price RM4.20
MIB Recommendation
Ann Joo Website

Maybank Investment Bank upgrades Ann Joo Resources (6556.KU) to Buy

Maybank Investment Bank upgrades Ann Joo Resources (6556.KU) to Buy from Hold, raises target price to MYR3.45 from MYR2.60; says 1Q FY10 results due April 28 likely to show improvement over 4Q FY09's net profit of MYR23 million on higher sales volume; earnings momentum to accelerate in subsequent quarters on increase in steel billet-to-scrap spread (now at $150/tonne); average steel selling prices to increase further on strong exports to Vietnam, recovery in Middle East market. "We believe investors will re-rate long steel sector on strong demand-price dynamics. Also, it is practically the only sector with cheaply-priced (below 7X PE) positive newsflow in the broader market." Ann Joo down 1.4% at MYR2.80.

http://www.annjoo.com.my/

AmResearch keeps overweight call on steel sector

Ann Joo is AmResearch's top pick to cash in on the rising steel prices, with a buy call at RM4.50

AmResearch maintained its overweight stance on the steel sector, saying the industry is at the early stages of a steel price upcycle.

Steel consumption is expected to pick up significantly from the first quarter onwards, it noted, as governments within Asia intensify pump-priming initiatives to boost their respective economies.

A weak US dollar is another structural driver for steel demand, while the renewed merger and acquisitions newsflow is another booster.

Ann Joo is AmResearch's top pick to ride on the rising steel prices. It has a buy call on Ann Joo (6556) with a RM4.50 target price.
Ann Joo's structural repositioning as an integrated steelmaker puts it in a sweet spot as an early beneficiary of accelerated infrastructure spending, it noted.

AmResearch is also starting to cover Lion Industries Bhd with a buy call. The stock's fair value is pegged at RM2.50.

"Despite a strong run-up in its share prices of late, Lion Industries is the cheapest stock within our steel sector universe at three to four times price earnings of financial year 2010 and 2011," according to a January 26 AmResearch note.

STEEL – INTEGRATED LONG PRODUCERS (OVERWEIGHT)

STEEL – INTEGRATED LONG PRODUCERS (OVERWEIGHT) Sector Update: Seeking the New Sweet Spot
With steel counters back on the limelight, we made a fundamental review and found ourselves looking at a much improved environment of: (i) rising steel prices and expectation of expanding margins, particularly for iron making, (ii) demand set to surge after the Chinese New Year celebration, driven by real demand and improved buying sentiment on positive price trends, (iii) new yearly benchmark prices for iron ore and coking coal likely to increase by 20% to 30%, which will support ASP, (iv) implementation of stimulus packages worldwide have just begun to spur long steel requirements, (v) huge untapped semi finished steel market in SEA region, and (vi) generally still undemanding valuations. These factors prompt us to maintain our OVERWEIGHT stance on the steel sector and raise fair values across the board. We have BUY calls on Lion Industries, Southern Steel and Masteel, a Trading BUY on Perwaja, but a NEUTRAL call for Kinsteel and a SELL on Ann Joo.

Malaysia steel producers upgraded

Ann Joo Resources Bhd and three other Malaysian steel producers were upgraded at RHB Research Institute Sdn Bhd to reflect improving demand and product prices.

Ann joo was raised to “outperform” from “market perform,” while CSC Steel Holdings Bhd was upgraded to “outperform” from ‘underperform,’’ RHB said in a report today.

Hiap Teck Venture Bhd and Kinsteel Bhd were also raised to “outperform,” it said.

Kinsteel rose to a 17-month high in Kuala Lumpur trading, climbing 3.6 per cent to RM1.14 at 9:08 am local time, set for the highest level since August 8, 2008.



Ann Joo Resources gained 1.9 per cent to RM3.21, CSC Steel rose 1.4 per cent to RM1.46 and Hiap Teck added 2.1 per cent to RM1.46. -- Bloomberg

Global demand for steel will continue to strengthen in 2010

Perwaja : Target PER raised to 12x Outperform Sino Hua-An : Target PER raised to 12x Outperform%D �nn Joo Resources : Target PER raised to 12x Outperform (up from MP) Kinsteel : Target PER raised to 12x Outperform (up from MP)Hiap Teck Venture : Target PER raised to 9x Outperform (up from UP)%D�SC Steel : Target PER raised to 9x Outperform (up from UP)- We believe the upward price momentum for steel products is likely to sustain over the next 2-3 months, as:%D�) Global demand for steel will continue to strengthen in 2010, underpinned by higher infrastructurespending and economic recovery; 2) Concerns on overcapacity are likely to be downplayed, at least fornow; and 3) Prices of inputs, in particular, iron ore fines, metallurgical coke and scraps will likely to rise%D�urther and this will lend support to steel prices.- In response to the improved outlook of the steel product sector, we are raising our 1-year target forwardPER for the steel sub-sector by 2x from 7-10x to 9-12x.- Given the improved near-term outlook, we are upgrading the steel sub-sector from neutral to Overweight.%D�orrespondingly, our rating for the overall building materials sector is also upgraded to Neutral.- Top picks for the sector are Perwaja (OP, FV = RM1.93) and Sino Hua-An (OP, FV = RM0.71). We alsolike Ann Joo Resources (OP, FV = RM3.53), Hiap Teck Venture (OP, FV = RM2.01) and CSC Steel (OP,%D�V = RM1.64).