Annjoo Q1 2019

Annjoo posted net losses for its 1st quarter report for FY 2019. A stark contract of its net profit compared to Q1 FY18 and Q4 FY18 as much as -111% and -120% respectively.

Look in detail of its financial statement showing that the group operating expenses have surpassed its revenue which is severe as every single tonnage that send out from production has already losing money.

Lower revenue and the loss incurred in the first quarter of 2019 (“1Q2019”) as compared to the previous year correspondence quarter were mainly due to lower tonnage sold coupled with depressed selling price in domestic market despite higher export tonnage in 1Q2019.

Lower revenue and the loss incurred in 1Q2019 as compared to fourth quarter of 2018 (“4Q2018”) were mainly due to lower sale tonnage coupled with depressed selling price arisen from the oversupply condition in the domestic market. 

Based on business segments review, manufacturing segment is turning red for 2 quarters; it started since last quarter (Q4 2018) when the group claimed that the decline in selling price which mainly attributed to the over supply situation due to a new competitor that foreign owned steel mills entering into domestic market. Manufacturing segment losses turn more severe in Q1 2019.  

Trading segment can consider still doing fine amid the slow economic growth situation. The group has increased their export volume as it can see from the geographical segment. Which is a good strategic from the management. 

Overall the company prospect is not encouraging.

Bad Points from Prospect: 

1. severe domestic oversupply situation (still unsolved)

2. expects a lower second quarter of 2019 due partly to seasonal factors that typically affecting construction activity, including the Ramadan month and Raya holiday. (Management does not look good on next quarter result)

3. oversupply situation in the domestic industry is still a main concern as steel prices continue

to be depressed by foreign-owned steel mills. (Domestic sales been threaten by foreign owned steel mills)

4. discussions with the relevant government authorities to resolve the current issues faced by the steel industry (Currently still in the midst of discussing with related government authorities, no solution and timeline at this moment yet)

Good Points from Prospect:

1. domestic sentiment has improved with the revival of selected mega infrastructure and large scale

development projects, for example the East Coast Rail Link and Bandar Malaysia.(coming second half year mega projects will revive.)

2. the industry is constantly in proactive discussions with the relevant government authorities to resolve the current issues faced by the steel industry. (At least some approaches to resolve the price war issue)

3. The Group remains highly responsive to market changes and agile in sales mix to meet international demand and targets to increase export sales (goods sold has shifted to export)

Comment:
Annjoo Q1 FY19 result is very disappointing, the domestic steel price competition issue remains unsolved for 2 quarters and no concrete solution to counter it. Therefore, the group will remain in red for the following quarters until the domestic demand recover again.

Technical analysis:

Annjoo price is currently making the 3rd Elliot downtrend wave. The price has dived below MA 9 and 200 meaning that in short and long term the stock is moving in a bearish trend.
The next support line I will see it at RM 1.30.

It is not a good sign to bottom fish now. I will wait until the demand boosted by those revival mega projects