HLG: Ann Joo Resources - H108 beats Street on ASP hikes (8 August 2008)

Ann Joo Resources Bhd BUY



Price target RM5.00



Share price at 7 Aug RM3.68



Investment summary
H108 results beat HLG/consensus forecasts by 20-60%, as the steel super-cycle continues to surprise on the upside. Record results re-affirm our BUY rating on AJR: (1) ASPs and margins will expand on global emerging market cyclical demand growth, plus possible domestic demand up-tick from the 9th Malaysia Plan; (2) 60% EPS CAGR driven by the new blast-furnace plant and privatization of AJS; (3) sub-market fully-diluted 4x FY08 PE.

We are positive on Malaysia’s steel sector due to: (1) a rebound in domestic demand from

the construction sector; (2) Chinese steel export curbs, which create a benign pricing

environment for Malaysian producers. However, we expect the steel cycle to peak in Q408 on the global/China economic slowdown, and as supply normalizes post-Beijing Olympics.



Our top pick in the sector

Despite the recent KLCI correction, AJR’s share price has proved relatively resilient (-8% vs. -26% for its peers). We think the stock will be supported by 6% FY08E DY and low foreign shareholding, and remains our top pick in the steel universe.