KUALA LUMPUR: Ann Joo Resources Bhd's plans to expand vertically into the electrification space is an opportunistic deal that will help tratrailblaze its entry into the energy transition sector.
CIMB Securities said Ann Joo had earlier this month proposed a one-for-four rights issue that involved the issuance of up to 158 million new shares with free warrants.
Based on a 15 per cent discount to the theoretical ex-rights price of RM1.24, the indicative issue price for the rights shares is RM1.05.
The warrants are detachable, and have an indicative exercise price of RM1.24. On the whole, the rights issue is expected to raise RM105 million under the minimum scenario, and RM158 million for the maximum scenario.
"We draw comfort that the recapitalisation exercise is not meant to pare down Ann Joo's borrowings, but to support its expansion programs.
"Upstream, the commercial rollout of Perfect Channel's rolling mill could kick-off by year end, once key equipment is installed. Located within a 437-acre tract of freehold industrial land in Gurun, Kedah, the mill has been repurposed to produce higher-grade wire rods.
"At the same time, its production mix can also cater for steel rebars to fill the void left behind by the Shah Alam rolling mill, which has been discontinued," it said.
On the downstream segment, CIMB Securities said Ann Joo had invested in a new tailor welded blanks (TWB) production line that carved a path for the group to enter the automotive supply chain and supply steel sheets to various local car producers.
"To us, such a move may eventually open the door for the group to make inroads into the supply of engineering-grade wire rods that are compatible with the automotive sector.
"By the same token, it is striving to improve its cut and bend offerings to capitalise on an expected upsurge in infrastructure orders from Singapore," it added.
Ann Joo is acquiring IAC Electricals (M) Sdn Bhd to facilitate entry into the energy transition sector.
It had agreed to fork out RM13 million in early May to gain control of IAC Electricals from Rohas Tecnic.
The acquisition also comes with a factory in Batu Gajah, Perak.
IAC Electricals manufactures components for the overhead electrical transmission towers and fittings.
Before this, Ann Joo had in February 2024, bought a 100 per cent-stake in IAC Infrastructure, which is engaged in construction, engineering and infrastructure development works.
"Over time, we believe that these strategic acquisitions provide a solid platform for Ann Joo to transform into an integrated provider of electrification solutions."
CIMB Securities maintained "Buy" on the stock for its leverage to the steel sector, as local order flows should improve in tandem with the imminent rollout of major infrastructure projects by end-2024.
It also adjusted its target price downwards to RM1.50 after factoring-in the proposed rights issue.