Annjoo - 14 Apr 17

Annjoo revisit.
buy at 2.7 on 14 Apr 17

Reason to buy 
- MITI tax for Steel bar continue for 3 years.
- Steel company will be benefit from this. PE overall is low 8x

details as below

The Federal Government decided to make the previous preliminary safeguard measure for rebars and wire rods into a definitive measure which will run for another 3 years. To recap, back in Sept 2016, the government had imposed preliminary safeguard duties for long steel products, i.e. rebars and wire rods at 13.4% and 13.9%, respectively.

The newly announced definitive safeguard for rebars and wire rods will run at the same rate of 13.4% and 13.9% for the next one year (starting 14/4/17) and subsequently at reduced rates of 12.3%-11.1% (rebars) and 12.9%-11.9% (wire rods) for the next 2 years.

ANNJOO is a direct beneficiary as the safeguard measure will continue to deter imports and serve as an additional barrier for Chinese steel to enter local shores even if Chinese steel prices were to come off as a result of slower construction activities in China.

Hence, moving forward, the local steel prices will continue to remain resilient with long steel prices to be >RM2,000/tonne buoyed by the low imports. Currently (14 April 2017), local steel prices are trading at healthy levels of RM2,100-2,250/tonne (+30% YoY).

Risk

Risks include lower-than-expected steel selling prices, lower-than expected steel demand, and higher-than-expected raw material costs.