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 PE mean of 12.7x for global agrichemical peers. No ESG-related FV adjustments based on an unchanged 3-star rating.

• Pending an analyst briefing later today, we maintain to our earnings forecasts as Ancom’s 1HFY23 core net profit of RM42.3mil generally came in within expectations, accounting for 54% of our FY23F net profit and 56% of consensus.

• No interim dividend has been declared in this quarter, which is also in line with our FY23F-FY25F assumption of no distribution.

• On a YoY basis, Ancom’s 2QFY23 revenue registered a slight decline of 0.3% to RM531mil from RM533mil in 2QFY22. This was mainly contributed by the lower average selling price from industrial chemicals and reduced demand from polymer segment.

• However, 2QFY23 core net profit improved materially (2.1x YoY) to RM22.4mil from RM10.5mil in 2QFY22, mainly attributable to agricultural chemicals (agrichem) and logistics segments, as well as lower tax expenses and minority charges.

• In 2QFY23, agrichem segment registered stronger revenue (+31%) and segmental profit (+29%), primarily underpinned by strong demand for the group’s herbicidal products, especially from the ASEAN region. This was further boosted by the maiden earnings contribution from Shennong Animal Health (Malaysia) and Vemedim. To recap, Ancom acquired 80% equity stakes in both companies in Jun 2022.

• Separately, logistics turned around from a loss of RM1.1mil in 2QFY22 to a profit of RM3.1mil in 2QFY23. This was underpinned by higher chartered volume for a chemical vessel and the consolidation of One Chem Terminal’s profits since May 2022.

• On a QoQ basis, Ancom’s 1QFY23 revenue contracted slightly by 3% but core net profit increased by 12%, mainly due to lower tax expenses.

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

• The stock currently trades at a compelling FY24F PE of 11.6x, which is 9% below the 2-year forward sector average P/E of 12.7x.

Source: AmInvest Research - 18 Jan 2023