Ann Joo's long term profit hinges on safeguard measures

Ann Joo's long term profitability hinges on measures to curb cheap imports of bars and rods from China

KUALA LUMPUR: Although Ann Joo Resources Bhd could see supernormal earnings in the second quarter  of this year, its long term profitability hinges on measures to curb cheap imports of bars and rods from China. 

Maybank Investment Bank Research said on Wednesday although the company working to reduce its production costs, it could return to being loss-making if intense dumping activity from China recurs, something which it cannot mitigate. 

Hence, the safeguard measures in Malaysia (to be decided by end-September) are crucial in ensuring the company’s long-term profitability for these measures would curb the cheap imports, it noted. 

“We see a strong case for these safeguard measures as import of bars/rods from China has surged at a two-year (2013-15) compounded annual growth rate of 69% and raised our financial year 2016-2018 net profit forecasts to RM86mil/RM70mil/RM73mil respectively (from RM22mil/RM23mil/RM23mil) as we impute for the exceptionally strong second quarter earnings, higher average selling prices  (ASPs) (+10%) and higher sales volume (+8%) in financial year 2016- 2018,’’ the research house noted.

Maybank Research expects strong earnings in the second quarter on a sharp margin expansion given the jump in steel average selling prices (+20% to 30% quarter-on-quarter)  against its cheaper raw material inventory; a record high sales volume with the company fully-sold its capacity as well as clearing all of its inventories during this high ASP period.

“However, we believe earnings in the third quarter could come off significantly due to the correction in steel average selling pricess (end-June: -10-15% from the second quarter) and lower sales volume (carries minimal semi-finished/finished inventories now)," it added.