Better earnings clarity for Ann Joo with import safeguard duties, says Maybank IB

Posted on 14 April 2017

Source: The Star Online

Maybank IB Research has reiterated its 'buy' call on Ann Joo Resources Bhd following the determination of safeguard duties for the import of bars and rods at 11% to 14% on a declining rate over the next three years.

In a note today, the research house said that the definitive safeguard duties have been determined at between 13.42% and 13.9% for the first year. They will subsequently decline to between 11.1% and 12.9% over the next two years.

Maybank IB currently has a target price of RM3.20 for Ann Joo's shares, suggesting a 22% upside.

“Although there is limited dumping risk presently given the improved demand in China, the duties will protect the local steel industry from any massive import over the next three years. Wee remain positive on Ann Joo given the higher average selling prices (ASPs) and improved demand-supply dynamics globally,” it said.

Including the present import duty of 5%, Maybank IB believes that the total duties for importing bars and rods would be between 15% and 19% for the next three years, which will be enough to deter any influx of imports.

Malaysia has seen slower imports in bars and rods recently with a 31% year-on-year decline in January as ASPs in China has become more attractive than its export markets.

In turn, Maybank IB expects Ann Joo's high ASPs to be sustained this year given the capacity cut commitment by China. It added that the company's ASP-to-cost spread continues to widen and may result in margin expansion.

As at 10:15AM today, Ann Joo's shares were last traded at RM2.68, or a four sen increase from Thursday's close. 

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