Investment Highlights

• Maintain BUY on Ancom Nylex (Ancom) with a higher fair valu of RM1.44/share (from RM1.28/share previously) as we rollov our base valuation year to FY25F, pegged to 12x PE − its 3-ye historical mean. No change to our 3-star ESG rating.

• While FY24 PATAMI of RM81.5m (+8.4% YoY) was within o expectation, this is a new company record, underpinned b strong agricultural chemicals business segment. PBT marg improved by 80 basis points YoY to 5.5%, but the effective ta rate has risen to 26.8%, versus only 19.8% last year. The high tax rate is due to non-deductibles at its subsidiary level.

• 4QFY24 PATAMI of RM18.1m (+1.4% YoY, -8.3% QoQ) wa slightly below ours (-9%) and consensus (-13%). Th agricultural chemicals business performed very well an helped boost PBT margins by 1 percentage points YoY to 5.1% But this was beset by a much higher tax rate of 31.4% (vs. 4.6 YoY).

• Overall, the agricultural chemicals segment performe strongly with better profits and margins, and there we noteworthy cost reductions at the group holding level. The re of the business segments have underperformed due to high operating costs.

• Management announced a DPS of 1sen for 4QFY24 (none f last year), and the ex-date will be announced at a later date. F FY24, DPS of 2 sen (+100% YoY) translates to a payout ratio 25%.

• Total shares repurchase of RM16.9mil in FY24 translates ~1.6% of shares in circulation.

• Net gearing has improved to 0.42x from 0.53x last year. FCF f FY24 was at RM80.3mil, a decline of -7.5% YoY as there we sizeable acquisitions throughout the year which amounted RM43mil (>2x of RM19.

• Global demand is good and current global weather patterns a conducive for Ancom’s business. But the outlook statement heavy on caution, citing the ongoing Russia-Ukraine war an shipping uncertainty at the Red Sea. These events significant impact on global agricultural trade and pose unknow complexities for the business.

• The company will conduct an analyst briefing on 22 Jul, an we will issue a post briefing note after that. Our earning forecasts are maintained pending management inputs.

• The stock trades at 8.7x PE and EV/EBITDA of 4.1x for FY25 which is unjustifiably cheap considering it is forecasted deliver forward 3-year earnings CAGR of 22% and high-teen ROEs.

Source: AmInvest Research - 19 Jul 2024