Review

• Stripping off the extraordinary items totalling RM25.2mn, ANNJOO’s 9MFY24 core net loss was broadened to RM109.3mn, compared to ours and the consensus’ full-year net loss estimates of RM63.1mn and RM70.1mn, respectively. The weaker earnings performance was primarily underpinned by lower-than-anticipated profitability margins resulting from persistently low average selling prices (ASP).

• YoY, 9MFY24 core net loss for 9MFY24 has widened by 6.5%, despite a modest revenue growth of 0.9%. This was primarily due to lower profitability margins, driven by weak ASP across the board. However, the topline was partly supported by higher revenue from the Green Technology Division, following the launch of its waste management business in June 2023.

• QoQ, 3QFY24 revenue increased by 15.3%, driven by higher sales tonnage despite the subdued ASP. However, the mismatch between ASP and input costs completely eroded profitability margins, resulting in a higher core net loss of RM56.2mn, compared to a core net loss of RM32.4mn in 2QFY24.

Impact

• Following the disappointing results, we adjust our cost assumptions for FY24/25/26F. As a result, we now expect the group to post a higher core net loss of RM107.8mn in FY24. However, we anticipate a turnaround with profits of RM46.9mn in FY25 and RM56.1mn in FY26. For comparison, our previous projections for the respective years were a net loss of RM63.1mn, net profit of RM62.9mn, and RM72.1mn.

Outlook

• Due to subdued global steel prices, we expect ASP to remain under downward pressure in the near-term future. This is despite a slight boost in profitability stemming from the new procurement strategy. Ongoing global market uncertainties, fuelled by geopolitical tensions and the less effective stimulus packages from China, are likely to impede the recovery in steel demand.

• However, we maintain a cautiously optimistic outlook for FY25, primarily because of the expected commencement of the Penang LRT project, where ANNJOO is strategically positioned as a key supplier. The group's competitive pricing and strong market presence should provide a significant advantage. Furthermore, the rejuvenation of the property sector, with more high-rise project launches and increased construction activities, is expected to drive up the demand for steel products.

Valuation

• Following the earnings revision, we adjusted our target price to RM0.89 (from RM1.35 previously), based on 12x CY25 earnings. Downgrade the stock to Hold from Buy.

Source: TA Research - 28 Nov 2024