Investment Highlights

• We maintain our BUY call on Ancom Nylex (Ancom) with an unchanged fair value (FV) of RM1.30/share. This is pegged to a target FY24F PE of 12.7x, 1 standard deviation below its 5-year mean given the current volatile commodity markets. This is also at parity to the 2-year forward PE of global agrichemical peers. No ESG-related FV adjustments based on an unchanged 3-star rating.

• Our forecasts are maintained following the group's acquisition of an additional 2.9mil shares (or 24% equity interest) in Ancom-Chemquest Terminals (ACT) for RM3.8mil cash from a Thai businessman, Surasak Suwanapasri.

• To recap, Ancom had on 5 Oct 2022 already acquired 3mil shares (or 25% equity interest) of ACT from PPB Group’s Chemquest for a total cash consideration of RM4.0mil. At that time, ACT was a 51%-owned subsidiary of Ancom Logistics. Notably, Ancom owned 34% of Ancom Logistics.

• Hence, the effective stake Ancom has in ACT has risen to 66% after the new acquisition announced yesterday. Going forwards, Ancom will acquire the remaining effective 34% in ACT from Ancom Logistics in 1-2 year.

• The principal activity of ACT is to build, own, operate, manage and lease out chemical tank farm and warehouse to industrial chemical distributors. ACT owns 48 tanks or 44,100 cubic metres of tank storage capacity in West Port, Klang, Selangor. Over the past 3 years, ACT consistently generated PAT of RM2mil per annum.

• We view the total consideration of RM7.8mil for an additional 49%-equity stake in the chemical tank farm over the past month as a good deal, given a full replacement cost could be 3x-3.5x higher at RM45-55mil. Ancom guided that the conditions of the chemical tank farm appears well-maintained.

• There will be no material increase in gearing and FY23F earnings from this acquisition in view of the relatively small size of the acquisition.

• We view this acquisition in line with the group’s intention to become one of the major integrated chemical groups in the South East Asian region.

• We believe Ancom will continue to benefit from the ban of paraquat in Malaysia, Thailand and Brazil in FY23F. Over the medium-to-longer term, the introduction of new agricultural active ingredients will further boost the group’s FY24F-25F earnings.

• The stock currently trades at a compelling FY24F PE of 9.1x, which is 28% below the 2-year forward sector average PE of 12.7x.

Source: AmInvest Research - 16 Nov 2022