Kenanga Research projects FY20, FY21 net losses for Ann Joo, cuts target price to 55 sen

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KUALA LUMPUR (July 1): Kenanga Research is projecting Ann Joo Resources Bhd to post losses of RM60 million and RM13 million respectively for financial year 2020 (FY20) and FY21, upon adjusting its sales and margin assumptions in view of business disruptions during the Movement Control Order period, depressed average selling price and higher raw material cost due to supply disruptions caused by the Covid-19 pandemic.

In a note today, the research house downgraded the steelmaker to "underperform" at 72 sen with a lower target price of 55 sen (from 58 sen) after Ann Joo in a bourse filing yesterday said it posted a widened net loss of RM30.56 million for the first quarter ended March 31, 2020 (1QFY20) from RM6.6 million a year ago due to lower sales and selling prices of steel products amid the virus.

Meanwhile, its quarterly revenue fell 17.18% to RM445.67 million from RM538.12 million previously on lower sales tonnage for both domestic and export markets.

"Excluding one-off overhead cost for plant's temporary shutdown (RM5.2 million) and allowance for inventories written down (RM7.4 million), Ann Joo recorded 1QFY20 core net loss of RM17.6 million, which came in below our and consensus expectations," said Kenanga.

The research house remains cautious about Ann Joo's prospects as it expects oversupply issues and softer domestic demand to continue to impact the steel industry, despite seeing some rebound in average selling price lately.

"Besides, manufacturing margins could be further distressed by increased iron ore prices due to global supply chain disruption from Brazil and Australia influenced by Covid-19 outbreak.

"However, we are encouraged by the group's strategy to actively pursue export opportunities, which may help in cushioning the negative impact from slower domestic demand and gaining tax incentive from increasing export," it noted.

Moving forward, the research house noted that the company will focus on optimising operational efficiency and reducing cost to remain responsive to uncertain market changes.

As at 11.26am, shares in Ann Joo fell one sen or 1.39% to 71 sen, valuing the group at RM388.51 million. It saw some 484,300 shares traded.