ANN JOO RESOURCES BERHAD 22 ND ANNUAL GENERAL MEETING DATO LIM HONG THYE, GROUP MANAGING DIRECTOR 30 MAY 2018

Transcription

1 ANN JOO RESOURCES BERHAD 22 ND ANNUAL GENERAL MEETING DATO LIM HONG THYE, GROUP MANAGING DIRECTOR 30 MAY 2018

2 INDUSTRY OVERVIEW

3 INDUSTRY PERFORMANCE STEEL BAR PRICES (SOUTHEAST ASIA) Commodities Boom China Steel Overcapacity > 400 mil mt: 1) over-production; 2) surge in exports; 3) prices slumped below cost in 2H Start of China Steel Reforms Global Financial Crisis 2017 China Eliminated Induction Furnaces 3

4 2017 STEEL MARKET REVIEW SURGE IN STEEL PRICES HIGHER MATERIAL & FUEL COSTS Surge in steel price & profits driven by China s industry reforms Higher raw material & fuel prices: Iron ore 22% (2017 USD 71/mt vs 2016 USD 58/mt) Scrap 27% (2017 USD 301/mt vs 2016 USD 238/mt) Coking Coal 14% (2017 USD 188/mt vs 2016 USD 165/mt) EAF production cost further impacted by surge in graphite electrode prices (spot price surged from below USD 3,000/mt to USD 30,000/mt by 4Q17) China shut down: DEMAND SUPPLY DYNAMIC 115 mil mt steel capacity in 2016 & 17 closed est. 140 mil mt Induction Furnaces in 2017 China exports 31% to 75 mil mt in 2017 ASEAN-6 apparent steel consumption 5% (est.) to approx. 73 mil mt in 2017 Malaysian domestic construction steel demand at a low base on slow progress of infra projects Soft steel demand from O&G sector (source : Steel Business Briefing, Platts, World Steel News, SEAISI) 4

5 FINANCIAL HIGHLIGHTS

6 FINANCIAL HIGHLIGHTS P & L 2017 (RM mil) 2016 (RM mil) Chg (%) Cash Flow & Balance Sheet 2017 (RM mil) 2016 (RM mil) Revenue 2, , % Operating Cash Flow EBITDA % Free Cash Flow * Pretax Profit % Income Tax (47.5) (35.4) 34.2% Net Profit % Inventory Borrowings ** (+2%) (-12%) (-15%) (-26%) Basic EPS (sen) % Net Gearing 0.64x 0.85x DPS (sen) % * Free Cash Flow defined as Operating Cash Flow less Investing Cash Flow **Dividends paid in 2017 of RM 79 mil (for ordinary shares & RCPS) 6

7 PERFORMANCE REVIEW REVENUE Revenue (RM'mil) 2017 VS 2016 REVENUE INCREASED BY 17.4% 2,155 2,292 1,761 1,870 2,195 steel prices, mainly due to: Rise of steel prices in China & international markets Prices of key raw material such as iron ore, scrap & coking coal, on average rose in FY2013 FY2014 FY2015 FY2016 FY2017 1Q2018 1Q18 VS 4Q17 REVENUE DECREASED BY 3.5% revenue mainly due to exports, in line with the Group s focus on domestic market for finished products 7

8 PERFORMANCE REVIEW NET PROFIT Net Profit (RM mil) PROFIT TURNAROUND (135.48) FY2013 FY2014 FY2015 FY2016 FY2017 1Q VS 2016 NET PROFIT INCREASED BY 23.1% Net profit mainly due to: steel prices Hybrid BF-EAF technology that provides operational flexibility in volatile markets Refine sales mix (local vs exports, finished & semi-finished) to optimise profitability Slight domestic demand as progress of large scale infra projects gradually picked up in the latter months of Q18 VS 4Q17 NET PROFIT INCREASED BY 10.7% net profit due to improved margin on higher selling price & improved productivity despite higher raw material & fuel (coke) cost 8

9 REVIEW OF LONG-TERM FINANCIAL PERFORMANCE ANN JOO GROUP REVENUE & PAT ( ) Revenue (RM mil) 2,400 2,000 1,600 1, AJSB (Malayawata) became subsidiary of AJR 2000 Took over Malayawata s management , Privatization of AJSB 198 1,948 2, , , ,275 2,111 2,155 (19) 2016 Total Steel Solution Provider Oct 2011 BF Commissioning 2, , ,870 PAT (RM mil) , (50) (100) 0 (135) (150) Revenue PAT 9

10 2017 FINANCIAL RESULTS: UPSTREAM LONG-PRODUCT MANUFACTURERS (RM mil) 253 PBT/(LBT) (2017 vs 2016) Ann Joo Masteel Southern Lion Ind* 2016 (38) 2017 * Based on Steel Segment Results before Interest & Exceptional Items 10

11 MARKET CAPITALIZATION (RM mil) 2,000 UPSTREAM LONG-PRODUCT MANUFACTURERS ( YTD2018) 1,800 1,600 1,400 1,200 1, Ann Joo Southern Masteel Lion Ind 11

12 OUTLOOK & PROSPECTS

13 INDUSTRY TRENDS & PROSPECTS 1 2 PRICE OF STEEL BARS MALAYSIA & CHINA RAW MATERIALS, ELECTRODES & FUEL/UTILITIES 3 CHINA EXPORTS 4 US SECTION MALAYSIA IMPORTS PROSPECTS FOR ANN JOO 13

14 STEEL PRICE INDUSTRY TRENDS USD/mt) STEEL BAR PRICES : MALAYSIA VS CHINA USD 605 USD 590 China Rebar HRB400 (USD/mt Exwork) (source : Mysteel, MITI Weekly Bulletin) Malaysia Rebar Price (USD/mt delivered) * MS 146 standard HRB RMB /mt > HRB400 14

15 KEY RAW MATERIAL PRICES IRON ORE & SCRAP USD/MT Iron Ore Price (Jan 17-May 18) (source: SBB) USD/MT Scrap Price (Jan 17-May 18) (source: SBB) Iron Ore/IODEX 62% Fe $/mt / North China import CFR $/t Average Quarterly Price IRON ORE To hover around USD60-80/mt level in 2018 (in-house view) Current spot USD64/mt vs 1Q18 USD74/mt, 13.5% Price Forecast Goldman Sachs USD 68/mt USD 63/mt USD 60/mt Australian Govt. USD 61.80/mt USD 46.70/mt USD 49.00/mt HMS CFR Turkey / Turkey import CFR $/t Average Quarterly Price SCRAP Price expected to move in-tandem with global EAF production levels, influenced by shortage of electrodes Additional EAF capacities in China a potential driver of scrap prices Current spot USD337/mt vs 1Q18 USD363/mt, 7.2% (source: Australia Business Insider, Platts, Steel Business Briefing) 15

16 KEY RAW MATERIAL PRICES COKING COAL & COKE Premium Coking Coal (Australia Exports FOB) (Jan 17-May 18) USD/MT (source: SBB) USD/MT Coke (CSR 62% North China FOB) (Jan 17-May 18) (source: SBB) Premium Coking Coal (Australia Exports) Average Quarterly Price COKING COAL Expect long term prices of USD /mt for coking coal (in-house view) Current spot USD185/mt vs 1Q18 USD229/mt, 19.2% Coke (CSR 62% North China FOB) Average Quarterly Price COKE Our Coke procurement prices are largely based on long term supply contracts that are index-linked to coking coal prices Current spot USD337/mt vs 1Q18 USD351/mt, 4.0% (source: Platts, Steel Business Briefing) 16

17 ELECTRODE DEMAND & SUPPLY IMBALANCE DEMAND-SUPPLY DYNAMICS International UHP electrode spot USD23k-25k/mt in 1Q18 Demand-supply imbalance needs 2-3 years to adjust MODERATE IMPACT TO ANN JOO Hybrid BF-EAF operations result in UHP electrode consumption 50-60% lower UHP electrode requirements depending on hot metal charging ratio Strategic supply contracts assure adequate supply of electrodes 17

18 IMPACT OF RISING UTILITY COSTS ON ANN JOO COMPETITIVENESS IN AN ENVIRONMENT OF HIGHER UTILITY TARIFF AVERAGE NATURAL GAS PRICES CHANGE (%) 1 Jun 2011 RM 16.07/mmbtu 1 May 2014 RM 19.32/mmbtu 20% 1 Nov 2014 RM 19.77/mmbtu 2% 1 Jul 2015 RM 21.80/mmbtu 10% 1 Jan 2016 RM 25.53/mmbtu 17% 15 Jul 2016 RM 27.05/mmbtu 6% 1 Jan 2017 RM 26.71/mmbtu 1% 1 Jul 2017 RM 28.05/mmbtu 5% 1 Jan 2018 RM 30.90/mmbtu* 10% * Exclude surcharge of RM 1.62/mmbtu, which translates to an effective tariff of RM32.52 beginning 1 Jan 2018 ELECTRICITY TARIFF 1 Jun sen/kwh Average Tariff Change (%) 1 Jan sen/kwh 15% Electricity tariff schedule to be maintained until 31 Dec 2020 with reduction in SIT for Tariff Category D, E1s, E2s and E3s (Prai plant), reflecting an increase of 2% vs E3s Tariff OPERATIONAL FLEXIBILITY AMIDST ELECTRICITY & NATURAL GAS TARIFF Ann Joo s flexibility in optimizing its hot metal/scrap mix & resulting generation of BF off-gas, which mitigates its electricity & natural gas requirements relative to pure EAF operations 18

19 CHINA SHIFTED FOCUS TO DOMESTIC MARKET CHINA SHIFTED FOCUS TO DOMESTIC MARKET : CHINA S EXPORTS TO ASEAN % Y-O-Y POTENTIAL EXPORTING COUNTRIES TO SEASIA : ALTERNATIVE TO CHINA ASEAN-6 Imports from China 2016 (mt) 2017 (mt) Long Products (mt) Turkey Russia Ukraine Iran Bar 13.3 mil 2.9 mil Wire Rod 4.0 mil 3.0 mil Other steel products 19.1 mil 15.0 mil TOTAL 36.4 mil 20.9 mil (mil mt) China Exports to ASEAN Production 21.9 mil 17.6 mil 5.9 mil 7.7 mil 2016 Exports 10.2 mil 4.3 mil 4.6 mil 0.5 mil Long Lead Time (source: SEAISI, World Steel Association) KEY CONSTRAINTS FOR IMPORTS FROM ALTERNATIVE MARKETS Large Minimum Shipment Order ASEAN-6 is traditionally a secondary market for alternative source of imports 19

20 US SECTION 232: IMPORT STATISTICS Aust & NZ, 0.49, 1% 2017 US Steel Imports (Mil MT) Canada, 5.68, 16% Mexico, 3.16, 9% EU, 5.01, 15% South Korea, 3.40, 10% Non-Exempted Countries, 12.19, 35% Brazil, 4.67, 14% Non-Exempted Countries (Mil MT) Other Non- Exempted Countries, 2.54, 21% Russia, 2.87, 24% China, 0.74, 6% Japan, 1.73, 14% Turkey, 1.98, 16% Taiwan, 1.13, 9% India, Indonesia & Thai, 1.20, 10% Non-Exempted Countries Brazil South Korea Mexico Aust & NZ Canada China Turkey India, Indonesia & Thai Taiwan Japan Russia Other Non-Exempted Countries (source: US Census Bureau) 20

21 MALAYSIA : SAFE-GUARD DUTIES FOR 3 YEARS REBAR & WIRE ROD REBAR SAFEGUARD DUTY RATE (%) 14 April April April April April April WIRE ROD & DBIC SAFEGUARD DUTY RATE (%) 15 April April April April April April Bar Import (MT) 600, ,000 Provisional SG 26/9/16 SG Wire Rod Import (MT) 400, , ,000 Provisional SG 27/9/16 SG 200, , Bar Import From China Total Bar Import Suspected Billet Import from China Note : Suspected Billet Import from China under HS Codes / / / REBAR Q18 TOTAL IMPORT 1,357,492 1,828, , ,909 Wire Rod Import From China Total Wire Rod Import (source : Department of Statistics Malaysia) WIRE ROD Q18 TOTAL IMPORT 1,245,787 1,027, , ,813 IMPORT FROM CHINA 1,279,638 1,675, , ,773 IMPORT FROM CHINA 832, , ,851 43,019 21

22 PROSPECTS KEY DRIVERS DOMESTIC DEMAND REGIONAL MARKET DYNAMICS Possible new government policies impact Softer domestic demand in 2Q18 due to seasonal factors (Ramadan & Raya) that typically affect construction activity Infrastructure expenditure is still expected to be the key economic driver to Malaysia under the new Government China s steel industry reforms (shift focus to quality instead of quantity) ASEAN-5 steel demand expected to grow by 6.6% 1 in 2018 Entry of new supply into the market US Section 232 impact CAPITAL MANAGEMENT Continue to strengthen balance sheet Ability to invest in operational improvements / plant upgrades & strategic expansion opportunities (regional or domestic) Note 1 : ASEAN-5 comprise Malaysia, Vietnam, Philippines, Indonesia & Thailand (source: World Steel Association) 22

23 INVESTMENT RESEARCH ON ANN JOO

24 RESEARCH REPORTS BASED ON 1Q18 RESULTS Research House Date Of Report Recommendation Target Price (RM) PE (X) Net Profit (RM mil) EPS (SEN) FY18 FY19 FY18 FY19 FY18 FY19 TA Securities 28/05/2018 Buy Maybank Investment Bank 28/05/2018 Buy UOB KayHian 28/05/2018 Buy Kenanga Investment Bank AM Investment Bank 28/05/2018 Outperform /05/2018 Hold

25 THANK YOU