Stocks With Likelihood Of Corporate Exercise: Ann Joo Resources

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Ann Joo Resources Bhd
The Malaysian steel sector is admittedly unexciting. Many local players are loss-making and lacking in scale. Amid overcapacity and a building slowdown in China, Chinese imports are now being dumped globally, depressing prices.

Amid this landscape, Ann Joo Resources is one of very few profitable steel companies in Malaysia, and is well regarded for its efficiency. The company was established as a scrap metal dealer in 1946 and is today a leading steel player, involved in both manufacturing and trading.

Ann Joo focuses on the production of steel billets, bars and wire rods for the construction industry. In the trading segment, it has diversified its customer base to include a variety of flat and long steel products for a wide range of sectors such as the oil and gas, palm oil, oleochemical and automotive industries.

For 2013, the company’s revenue increased 2.1% to RM2.2 billion, while pre-tax profit came in at RM4.5 million, a reversal from pre-tax losses of RM37.1 million. The company attributed the turnaround to better cost structure despite recognising a foreign exchange loss of RM25.8 million.

Its financials continue to improve this year. For 1H2014, pre-tax profit surged 92.5% to RM17.8 million while revenue rose 29.9% to RM1.3 billion. The higher revenue came on the back of better volume sales despite lower prices caused by the dumping of Chinese products. Net gearing stood at 127.7% as at end-June 2014, down from 168.7% in FY2013.

Although Ann Joo’s trailing 12-month P/E ratio is high at 34.08 times, the stock is trading at only 0.54 times of its book value. Notably from an M&A perspective, it is one of the strongest players in the sector, which could see some consolidation of the weaker players if conditions stay challenging.


This article first appeared in The Edge Financial Daily, on October 23, 2014.