Ancom Nylex continue to draw in investors with encouraging prospects

Ancom Nylex Bhd has been trending higher on the back of increased volume, having trade on a downward trend over the medium term. The counter has touched a 52-week high of RM1.23 in September last year after plunging to a low of 93 sen last June. Over the past year, it has increased some 15% to close at RM1.09 on June 27.

Investors are probably expecting better outlook for Ancom as the company appears more confident to grow earnings further for FY24-25. It has healthy timber preservative orders, strong demand for monosodium methanearsonate (MSMA) herbicide and better industrial chemicals margins. These factors are set to underpin its earnings growth moving forward.

Ancom’s newly acquired business and higher margin active ingredients (AIs) “T” are also contributing but it is investing further to improve the the stability of a key intermediate chemical input.

The company will see healthy timber preservative orders to continue into FY25. This is because a 3-year contract with an existing US customer, is pending signing soon. As timber preservative margins are good, healthy order translates to better overall profit margins. In addition, MSMA demand is expected to pick up.

Ancom has expanded its annual MSMA capacity from 11 million to 15 million litres recently to prepare for sales beyond sugarcane to include soyabean in Brazil, entry into Indonesia, and recovery in Thailand. The company is also reviewing its cost base in order to improve margins.

Relocation of its southern peninsular storage facility from Singapore to Johor is due to start in 1HFY25 but will need 2-3 years for full relocation.
It is also exciting that Ancom’s animal health and feed business bought in Dec 2021 (Shennong and Vemedim) has started to contribute to the group. The copany targets to grow it profit-base by venturing beyond livestock into pets.

Last April, Ancom acquired a 70% of HJ Unkel and is now growing HJ Unkel’s adjuvant segment which is used to enhance chemical properties. In the pipeline is the proposed reverse takeover of Green Lagoon Technology (GLT) by its 34%- owned Ancom Logistics Bhd.

This will help the group cut carbon footprint and contribute to profits. Since inception in 2010, GLT has grown to become one of Malaysia’s leading independent biogas players with involvement in over 60 biogas projects in Malaysia and Indonesia

Investors ontinue to like Ancom for its position as the largest herbicide active ingredients producer in South-East Asia, a beneficiary of the widening ban on Paraquat use.

The company is also seen as a beneficiary of US-China trade tension as well as being a proxy to global food production and food security goal.
Despite the stock currently trading at FY25 PE of 12x, near its 2-year average, Ancom is still a bargain as it is the largest agrichemical manufacturer in ASEAN.