ann joo resources berhad...net gearing ratio (x) net borowings net gearing ratio *net receivables =...
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ANN JOO RESOURCES BERHAD
24TH ANNUAL GENERAL MEETINGDATO’ LIM HONG THYE, GROUP MANAGING DIRECTOR
28 JULY 2020
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INDUSTRY OVERVIEW
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1700
1900
2100
2300
2500
2700
2900
MALAYSIA vs CHINA STEEL BAR PRICE (RM/MT)
Malaysia Rebar Price (RM/mt delivered) China Rebar HRB400 (RM/mt Ex-work)
(source : Mysteel, MITI Weekly Bulletin)
2019 STEEL MARKET REVIEW - SUPPLY-DEMAND IMBALANCE
3
DEPRESSED DOMESTIC STEEL PRICE (↓ 17% Y-O-Y)
OCT 18DECLINED DOMESTIC BARPRICE SINCE THE START-UPOF A FOREIGN-OWNED STEELMILL
4Q19DOMESTIC PRICE ONRECOVERY TREND
❑ DOMESTIC BAR PRICE DEPRESSED BY EXCESS SUPPLY MAINLY FROM A NEWLY STARTED FOREIGN-OWNED STEEL MILL IN OCT 2018
❑ SOFTER STEEL DEMAND FROM SLOW PROGRESS OF INFRASTRUCTURE PROJECTS
3Q19DOMESTIC PRICEDECLINED SHARPLYGIVEN OVERSUPPLYSITUATION
MAY 18GE-19
31ST MAY 19ANN JOO 23RD AGM As at
31 Dec 2019
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220
260
300
340
380
USD/MT Scrap Price (2018-2019)
Scrap HMS, East Asia Import CFR $/t Yearly Avg. Price
60
80
100
120
USD/MT Iron Ore Price (2018-2019)
IODEX 62% Fe / North China import CFR Yearly Avg. Price
4
KEY RAW MATERIAL PRICE MOVEMENT
Iron Ore ↑ 35% y-o-y Scrap ↓ 13% y-o-y
(source : Steel Business Briefing)
(2018 @ USD 69/mt)
(2019 @ USD 93/mt)
(2019 @ USD300/mt)
(2018 @ USD 343/mt)
IRON ORE PRICE SURGED TO USD126/MT IN 1H19 TRIGGERED BY INCIDENT OF VALE’S DAM COLLAPSE
SCRAP PRICE SOFTENED ON WEAKER DEMAND
As at 31 Dec 19
As at 31 Dec 19
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5
KEY RAW MATERIAL PRICE MOVEMENT
(source : Steel Business Briefing)
DOWNTREND OF COKING COAL PRICE DUE TO PRODUCTIONCURBS & IMPORT RESTRICTION IN CHINA
COKE PRICE MOVED IN TANDEM WITHCOKING COAL PRICE TREND
240
280
320
360
400
USD/MT Coke Price (Jan 18 – Dec 19)
Coke (CSR 62% North China FOB) Yearly Avg. Price
100
150
200
250
USD/MT Coking Coal Price (Jan 18 – Dec 19)
Premium Coking Coal (Australia Export FOB) Yearly Avg. Price
Coking Coal ↓ 14% y-o-y Coke ↓ 13% y-o-y (2018 @ USD 207/mt) (2018 @ USD 350/mt)
(2019 @ USD 177/mt)
(2019 @ USD 305/mt)
As at 31 Dec 19 As at
31 Dec 19
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FINANCIAL HIGHLIGHTS
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Profit & Loss (RM mil)
1Q20 2019 2018
Revenue 445.7 2,221.4 2,322.1
EBITDA (10.1) (70.8) 229.6
Pretax Profit/(Loss) (34.9) (162.0) 149.9
Net Profit/(Loss) (30.6) (89.9) 149.5
Basic EPS (sen) (5.66) (16.67) 28.13
DPS (sen) - - 12.0
FINANCIAL HIGHLIGHTS
Notes:1. Free Cash Flow defined as Operating Cash Flow less Investing Cash Flow
Balance Sheet (RM mil)
1Q20 2019 2018
Shareholders’ Funds 1,178.4 1,204.6 1,325.2
Net Borrowings 1,032.3 970.5 966.6
Inventory 916.4 872.2 1,085.4
Trade Receivables 376.5 368.8 465.77
Financial Position (RM mil)
1Q20 2019 2018
Operating Cash Flow (62.1) 70.9 (59.1)
Free Cash Flow 1 (62.0) 33.0 (99.7)
Borrowings12.6
(+1.2%)47.5
(+4.6%)176.6
(+20.9%)
Net Gearing 0.88 0.81 0.73
❑ 2019: Margin erosion on depressed steel prices &temporary shutdown cost from Blast Furnace relining
❑ 1Q20: Initial recovery in domestic demand post CNY2020 was abruptly halted with the sudden MCO
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538,124 574,320
505,285
603,706
445,672
1Q19 2Q19 3Q19 4Q19 1Q20
QUARTERLY REVENUE (RM’000)
2019 REVENUE AFFECTED BYDEPRESSED SELLING PRICE DESPITE HIGHER SALE TONNAGE
8
1,760,928 1,870,050
2,195,212 2,322,108
2,221,435
2015 2016 2017 2018 2019
YEARLY REVENUE (RM’000)
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MANUFACTURED PRODUCTS SELLING PRICE MOVEMENT
9
1.7%
9.6%
8.5%
6.3%
Wire Rod
Pig Iron
Billet
Bar
1Q20 vs 4Q19
-10.3%
-11.6%
-14.1%
-16.0%
Wire Rod
Pig Iron
Billet
Bar
2019 vs 2018
2019 : DEPRESSED STEEL PRICES ARISING FROM EXCESSSUPPLY
1Q20 : INITIAL RECOVERY IN DOMESTIC DEMAND POST CNY2020 WAS ABRUPTLY HALTED WITH THE SUDDEN MCO
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10
HEALTHY FINANCIAL POSITION
1,238
904
789
967 971 1,032
1.34
0.85
0.64 0.73
0.81
0.88
2015 2016 2017 2018 2019 1Q20
Net Borrowings (RM’mil) & Net Gearing Ratio (x)
Net Borowings Net Gearing Ratio
*Net Receivables = Trade Receivables – Trade Payables
952 831 847
1,085
872 916
111171
248
240
257257
1,019
1,063 1,002
1,095
1,325
1,129 1,173
219
1,238
904 789
967 971 1,032
2015 2016 2017 2018 2019 1Q20
Working Capital (RM’mil)
Inventories Net Receivables* Net Borrowings (Trade lines) Bonds
▪ NET GEARING RATIO CONSISTENTLY BELOW 1X▪ ASSETS ARE FREE FROM ENCUMBRANCES
▪ INVENTORIES & NET RECEIVABLES EXCEED NET BORROWINGS (TRADE LINES)▪ NO LONG-TERM BORROWINGS
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11
LONG-TERM FINANCIAL PERFORMANCE
17 16 24 37
69
20
127
198
149
31
121
62
(19)
12 23
(135)
167
205
150
(90)
(31)
ANN JOO GROUP PAT for 2000-2019 & 1Q20 (RM’Mil)
2000 Took over Malayawata’smanagement
2007Privatisation of AJSB
2006 AJSB (Malayawata) became subsidiary of AJR
Oct 2011 BF Commissioning
1Q20Business disrupted by COVID-19 pandemic
2016 Total Steel Solution Provider
2019Excess domestic supply & depressed selling price
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(8,326)
(347,825)
(89,860)
6,705
65,681
45,202
149,544
Masteel
Lion Ind
Southern
Ann Joo
Profit /(Loss) After Tax (2019 vs 2018)(RM’000)
2018
2019
FINANCIAL PERFORMANCE OF LONG-PRODUCT PRODUCERS
Notes: Southern & Lion Ind yearly PAT are manually calculated accumulating 4 quarters for calendar year 2019;Lion Ind comprises its entire operations (not just the steel segment) 12
(4,172)
(56,709)
(37,479)
(30,558)
688
(98,330)
(334,928)
19,523
Masteel
Lion Ind
Southern
Ann Joo
Profit /(Loss) After Tax (1Q20 vs 4Q19)(RM’000)
4Q19
1Q20
(456,765)
LOSS POSITION OF DOMESTIC LONG PRODUCT PRODUCERS MAINLY INFLUENCED BY DOMESTIC EXCESS SUPPLY & DEPRESSEDSELLING PRICES
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PROSPECT
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INDUSTRY LANDSCAPE
DOMESTICMARKET
❑ Initial recovery in domestic demand post CNY 2020 was abruptly halted with thesudden MCO
❑ Sharp decline in steel demand in 2Q20 on COVID-19 pandemic impact and lowresumption rate of construction activities
❑ Recovery pace in steel demand will depend heavily on the Government’s spending oninfrastructure projects
EXTERNALFACTORS
❑ Hike in iron ore prices to above USD100/mt in Jun 20 mainly influenced by globalsupply chain disruption due to ongoing COVID-19 infections in Brazil and Vale’s damcollapse incident in Jan 19 (which had already reduced Brazil’s supply of iron ore)
❑ Decline in coking coal prices due to trade tension between China and Australia
❑ China’s strong steel demand, boosted by fast-track infrastructure investments.Construction activities in China are expected to pick up substantially after its rainingseason in Jun-Aug 2020
14
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1,750
1,950
2,150
2,350
2,550
2,750
2,950
RM/MT End Jan 2019Price rose on iron ore price surge after Vale dam collapse
(source : mysteel, MITI weekly bulletin)
IMPACT OF COVID-19 OUTBREAK ON STEEL PRICES
MALAYSIA vs CHINA STEEL BAR PRICE (RM/MT)
Malaysia Rebar Price (RM.mt delivered) * MS 146 standard ≈ HRB 500 @ RMB100-150.mt > HRB400
China Domestic Shanghai Rebar HRB400 (USD.mt Ex-work)
3Q19Sharp fall in domestic bar price
4Q19 Domestic price on recovery trend
Mar 2020China price recovered after easing of lockdown & economic stimulus measures
M’sia Bar PriceRM 1,980/MT
China Bar Price RM 2,218/MT as
As at 24 July 2020
15
-
4Q18 1Q19 2Q19 3Q19 4Q19 1Q20
58 143
737
444
735
43826 33
229
313
730
923
58 28
82
86
120 185
142204
1,048
843
1,585 1,546
Malaysia Billet, Bar & Wire Rod Export (‘000 MT)
Bar
Wire Rod
Billet
DIVERSION OF SURPLUS DOMESTIC OUTPUT INTO EXPORT MARKET
16(source: DOSM)
MALAYSIA’S STEEL EXPORTS EXCEEDED 1.5MIL MT OF BAR, WIRE ROD & BILLET IN LAST TWOCONSECUTIVE QUARTERS
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KEY RAW MATERIAL PRICES – IRON ORE & SCRAP
IRON ORE❑ Price hovered around range of USD80 - 90/mt in the 1Q20
❑ Price surged above USD100/mt is supported by strong demandfrom China and supply concern over Brazilian COVID-19 spreadwhich caused suspension of Vale’s plant at Itabira
❑ Current spot price @ USD110/mt
(source: Platts, Steel Business Briefing)
60
70
80
90
100
110
120
130
USD/MT Iron Ore Price (Jan 18 –Jul 20)
IODEX 62% Fe / North China import CFR Yearly Avg. Price
❑ Scrap price on downtrend in 1Q20 due to weak global demandimpacted by COVID-19 spread across the world
❑ Price rebounded to USD281/mt on supply tightness due to lowercollection from scrap generation industries
❑ Current spot price at USD267/mt
SCRAP
220240260280300320340360380
USD/MT Scrap Price (Jan 18 – Jul 20)
Scrap HMS, East Asia Import CFR $/t Yearly Avg. Price
17
HIKE IN IRON ORE PRICE DRIVEN BY SUPPLY TIGHTNESS & STRONG DEMAND FROM CHINA
(2018 @ USD 69/mt)
(2019 @ USD 93/mt)
(2020 @ USD 93/mt)
(2019 @ USD300/mt)
(2018 @ USD 343/mt)
(2020 @ USD264/mt)
As at 24 Jul 20
As at 24 Jul 20
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KEY FUEL PRICES – COKING COAL & COKE
COKING COAL❑ Coking coal experienced further downtrend since mid Mar 20 due
to weak demand from global market and fell below USD110/mt inearly June
❑ Current spot price hovers @ USD110/mt due to weak demandconsequent to the import restrictions in China port & trade tensionbetween Australia & China
❑ Coke price fell to the lowest at USD249/mt in end Apr 20 drivenby weak demand from global market
❑ Price rebounded to USD283/mt due to firm demand & tightsupply in China domestic market, drive up by the policy to reducecoke output in Shandong & Xuzhou region
❑ Current spot price corrected to USD268/mt
COKE
(source: Platts, Steel Business Briefing)
100120140160180200220240260
USD/MT Coking Coal Price (May 19 – Jul 20)
Premium Coking Coal (Australia Export FOB) Yearly Avg. Price
240260280300320340360380400
USD/MT Coke Price (May 19 – Jul 20)
Coke (CSR 62% North China FOB) Yearly Avg. Price
18
ANN JOO’S COKE PRICE IS CONTRACTED BASED ON COKING COAL PRICE & EXPECTED TO BENEFIT FROMLOW COKING COAL PRICE
(2018 @ USD 207/mt)
(2019 @ USD 177/mt)
(2020 @ USD 134/mt)
(2018 @ USD 350/mt)
(2019 @ USD 305/mt)
(2020 @ USD 272/mt)
As at 24 Jul 20
As at 24 Jul 20
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STRATEGIC DIRECTION
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STRATEGIC DIRECTION – KEY FOCUS AREAS FOR NEXT 6 MONTHS
Channel to export markets, particularly China, where infrastructure demand is supported by domestic pump priming1
20
Aggressive exports
Disciplined sales collection
Positive free cash flow
Lower Borrowings
(Target
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21
MARKET CAPITALIZATION OF STEEL PLAYERS
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Ann Joo Southern Lion Ind Masteel
STEEL PLAYERS’ MARKET CAPITALIZATION (2016 – YTD2020)
2016-2017Ann Joo expanded market leadership due to cost advantage
2019Commenced bar production of a wholly-foreign-owned steel mill
Mar 2020MCO
RM’mil
2019 - PresentAnn Joo remained the largest steel counter by market cap despite slump in domestic market
As at 24 Jul 2020
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INVESTMENT RESEARCH ON ANN JOO
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RESEARCH REPORTS BASED ON 1Q20 RESULTS
RESEARCH HOUSE DATE OF REPORT
RECOMMENDATION TARGET PRICE (RM)
PE (X)
NET PROFIT (RM MIL)
EPS (SEN)
FY20 FY21 FY20 FY21 FY20 FY21
KAF-Seagroatt & Campbell
30/06/2020 Buy 0.88 (6.1) (8.9) (127.1) (56.2) (19.4) (8.1)
KenangaInvestment Bank
01/07/2020 Underperform 0.55 N/A N/A (60.0) (13.0) (11.1) (2.4)
TA Securities 01/07/2020 Sell 0.42 (6.6) 36.0 (60.7) 11.3 (11.0) 2.0
AmInvestmentBank
01/07/2020 Underweight 0.55 N/A N/A (132.9) (54.1) (20.5) (8.4)
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THANK YOU
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