• Not-Rated. Ann Joo Resources Berhad (Ann Joo) 1QFY24 core LATAMI of RM24.6mn was below our in-house and consensus expectation, dented by lower sales volume as well as subdued ASP. Due to higher losses, we widened FY24F loss assumption from core LATAMI of RM14.2 to core LATAMI of RM76.8mn, and reduced FY25-26F earnings forecast by 7-14% to RM3.6- 16.1mn respectively. We foresee a persistently challenging outlook for the steel industry, driven by lacklustre domestic demand, unfavourable supplydemand dynamics originating from China, and the ongoing complexities of the global economic landscape. We have a non-rated recommendation on the stock.

• Key Highlight. 1QFY24 revenue improved by 6.9% QoQ, thanks to better ASP and increased sales volume. Steel price improved 4.6% QoQ to USD2,854/MT during 1QFY24. However, raw materials such as iron ore and coking coal declined by 3.9% QoQ and 8.1% QoQ respectively, reaching USD123/MT and USD307/MT due to weak market sentiment amidst expectation of sluggish steel demand. This contrasts with scrap prices, which surged by 2.1% QoQ to USD393/MT.

• Earnings Revision. We widened FY24F loss assumption from core LATAMI of RM14.2 to core LATAMI of RM76.8mn, and reduced FY25-26F earnings forecast by 7-14% to RM3.6-16.1mn respectively.

• Outlook. We anticipate persistent bearish sentiment in the steel market due to subdued domestic demand, imbalanced supply-demand dynamics from China, and challenging global economic conditions. Margins are expected to face ongoing pressure from higher operating costs. The minimal presence of large-scale domestic infrastructure projects further complicates the situation. While some projects are in the pipeline, we expect minimal contribution to Ann Joo due to its heavy reliance on export markets. Additionally, China's increasing supply may exacerbate the imbalance in supply-demand dynamics, potentially leading to glut conditions. In summary, we foresee prolonged challenges for Ann Joo given the less-than-favourable operating conditions.

Source: BIMB Securities Research - 31 May 2024