KUALA LUMPUR (May 29): Ann Joo Resources Bhd is delaying its regional expansion plan in view of the influx of China steel imports, which has put pressure on the selling price of its steel products.

According to group managing director Datuk Lim Hong Thye, Ann Joo (fundamental: 0.15; valuation: 2.0) initially planned to expand its footprint to the Southeast Asian region and move downstream to produce higher grade steel products by 2016.

“With the current situation, it will be hard for us to allocate additional funds for expansion or capital expenditure, because moving into high-end steel products cannot be done overnight,” he told pressmen after the group’s annual general meeting today.

Lim added that for Ann Joo to go downstream, it will require a lot of research and development, and massive investment into equipment — both of which have been hindered by low selling prices, as a result of cheap steel products from China.

“The issue is too serious and it is affecting a strategic industry in Malaysia. Therefore, we urge the government to look into it seriously,” he added.

Lim pointed out that in the first quarter of 2015, Malaysia’s steel bar imports from China has increased 226%. He does not foresee the number going down in the near future.

“Our strategy now is [to] continue to improve our productivity — that is the best we can do and the right thing to do,” said Lim.

On outlook, Lim said the group’s performance will remain at current levels, as long as the selling prices of its steel products stay the same.

“We do not expect to make a fantastic return, in the near term. I believe our cost will continue to come down — but everything will still have to depend on the selling price,” he said.

Lim noted Malaysia's steel demand has been very strong during the past two years, driven mainly by mega infrastructure government projects.

“Nevertheless, it will still have to depend on who the government awards the projects to. If it awards to foreign players such as those from China, which are known to provide every solution, including steel supply, [then] the economic multiplier effect will be substantially reduced,” he explained.

Ann Joo’s net profit in first quarter of financial year ending Dec 31, 2015 (1QFY15) fell 57.45% on-year to RM5.33 million, from RM12.52 million, dragged by a foreign exchange loss of RM7.08 million, due to the weakening of the ringgit against the US dollar.

Lim said one of the main reasons of lower profitability in 1QFY15, was lower export tonnage for its steel products.

As at 3:07pm, Ann Joo was trading at RM1.01 per share, one sen or 1% higher, with a market capitalisation of RM500.6 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)