KUALA LUMPUR (Nov 27): Hong Leong IB Research (HLIB) has maintained its Sell rating on Ann Joo Resources Bhd with a higher target price of RM11 and said the company’s 9MFY14 core net profit of RM31.8 million beat expectations, accounted 96.9% and 86.4% of house and consensus estimates, respectively.

In a note Thursday, the research house said the declining revenue for quarter-on-quarter (q-o-q) was on account of both on lower average selling price and tonnage sold while the increased in the profitability were due mainly to lower raw material price (such as coke and iron ore) and production efficiency.  

HLIB said Ann Joo’s management expects that demand would strengthen into 4Q, on the back of restocking activities ahead of the GST Implementation.

“However, the stronger demand may not translate to the bottom line as the industry is still struggling to compete with the huge influx of cheap Chinese steel products.

“On the trade actions that were tabled to MITI in the MISIF conference recently, the management shared that the progress of the recent meetings with MITI were positive. The management remains hopeful that positive measures will be announced within the next 2 months,” it said.

HLIB said Ann Joo’s FY14/15/16 earnings are revised upwards by 26.9%/ 4%/ 6.4% to reflect mainly the lower raw material costs.

“We upgrade the target price to RM1, based on unchanged 9x and FY15 EPS of 11.15 sen, following the upward revision in our earnings forecast. Maintain Sell,” it said.