KUALA LUMPUR (Sept 26): Kenanga IB Research has upgraded Ann Joo Resources Bhd to “Outperform” with a higher target price of RM2.24 (from RM1.69) and said that last week, the Federal Government issued provisional safeguard measures for steel coils and reinforced bars at a duty rate of 13.9% and 13.4% imposed respectively towards exporting countries into Malaysian shores.

In a note today, the research house said it was positive on the measure as it would boost Ann Joo’s steel re-bars average selling prices (ASPs).

It said despite the pro-longed overcapacity issue in China, it turned positive on the steel sector as steel prices are expected to remain stable premised on (i) China’s depleting steel inventory indicating rising domestic demand there, (ii) closure of loss-making steel mills in China, and (iii) China governments’ strong commitment in reducing steel production capacity through consolidation of steel groups coupled with financial support of RMB100 billion for worker retrenchment schemes.

“Upgrade FY17E earnings by 20% on the back of 8% higher ASP assumption.

“Post earnings adjustment, upgrade Ann Joo to Outperform (from MP) with higher target price to RM2.24 (from RM1.69) after switching valuation methodology from 0.76x FY17 PBV to 7.0x FY17 PER,” it said.