Share price: MYR1.18
Target price: MYR2.10 (unchanged)
Expect Better 2H
Within expectations. 2Q13 core net profit of MYR10m (+29% QoQ) brought 1H13 core net profit to MYR18m, making up 39% of our full-year forecast and 41% of street’s. Headline 2Q13 net profit was lower at MYR2m (1Q13: MYR10m) due to MYR8m unrealised forex loss. We see stronger sequential earnings, underpinned by strong local demand and improving international ASPs. We maintain our earnings forecasts, BUY rating and TP of MYR2.10 (1x P/BV). Share price downside is also limited given that it is trading at -1SD to its mean P/BV of 0.8x.
2Q13: Higher margins. AJR’s 2Q13 core net profit of MYR10m is a marked improvement from losses during 9M12. On a QoQ basis: (i) revenue was flattish as the higher trading sales (+7%) offset the fall in the manufacturing division (-4%); (ii) total manufacturing sales volume was lower (-4% QoQ) due to the weak export volume (-78%) while sales volume of steel bars to the domestic market remained encouraging (+9%). Export only made up 3% of total sales volume; and (iii) EBIT margin improved by 1.1-ppts on better continued improvement in production efficiency.
Expect a better 2H. We expect the domestic demand to remain favourable, underpinned by the ongoing construction activities and infrastructure projects. Additionally, we understand that the dumping activity of wire rods from China is also at the tail-end as the ASPs in China have gradually recovered. Given that AJR accumulated some billet inventory in 2Q13, it is well-positioned to capture any demand upswing in the regional markets.
Forecasts maintained. We maintain our forecasts, as we expect stronger earnings to emanate from: (i) better local and export sales; and (ii) margin expansion from better cost containment effort. Our earnings model incorporates steel bar sales volume growth of 5-10% in FY13-15.
Publish date: 29/08/13