Ancom-Nylex Bhd (“ANCOMNY”) being the sole large-scale producer of Active Ingredients (AI) for herbicides in Southeast Asia continues to show its resilient growth in 1HFY5/23 mainly boosted by the 2 new AIs, Bromacil and Ester and improving demand for MSMA- related AI due to widening paraquat ban in Thailand and Brazil. After our previous report issued on 25 August 2022, share price has gained by 28.3%. ANCOMNY’s capacity expansion is on track and set to introduce 2 to 3 new AIs going forward. We revised our FY24 and FY25 net earnings upward by 15.8% and 42.2% respectively. Maintain BUY with a higher TP of RM1.60 premised on PER of 13x (3 years average PE) on FY5/24 EPS of 12.3 sen.

ANCOMNY registered RM1.08bn revenue in 1HFY5/23, +15.3% YoY. This mainly attributed to increasing demand for MSMArelated products in Thailand and East Malaysia, namely from 2 new AIs, Bromacil and Ester plus contribution from livestock chemical business which was acquired in December 2021. However, industrial chemical was down 41.7% due to weakened global demand and management expects this segment to stay stagnant affected by global economic slowdown.

The two new AIs, Ester commercialised in 1QFY5/23 and Bromacil commercialised in 3QFY5/22 have opened new markets for ANCOMNY. While Ester is supplied to Australia for cereal crop, capitalising due to the geopolitical tension between Australia and China, Bromacil targets at pineapple and non crops in the US, Mexico, Japan and Indonesia and can assist ANCOMNY to achieve higher average selling price (ASP).

ANCOMNY has 2 to 3 new AIs in the pipeline which are T, S & C. T & S, targeted to be introduced in CY23-24 and may become the next growth driver due to potential higher ASP and bigger market volume.

Two new reactors for MSMA related products were commercialised in its Shah Alam plant, to cater for increasing demand due to the paraquat ban in Thailand and Brazil. The two new reactors are targeted to increase its MSMA production by 30% and management is seeing 15% growth in MSMA related products in FY5/23. On top of that, 9 reactors have arrived in Klang new plant and targeted to be commercialise in 1HFY5/24.

Source: Rakuten Research - 23 Feb 2023