Let's do a valuation exercise on 2 of the listed Agrochem players in Bursa:

ANCOM & HEXTAR.

1) HEXTAR

From Hextar's most recent briefing post the release of its Q2 results, Hextar illustrated how it may achieve PAT 64m post the 2 acquisition exercises. 

Hextar guided Proforma PAT RM64m (future earnings post-acquisitions)
PE25 = RM1.6b market cap

Current market cap? already RM1.6b 

But,
YTD PAT only 18.2m for 2 quarters.
To justify the current market cap at PE25, the coming 2 quarters would need to make up the remaining RM45.8m PAT shortfall.
Meaning to say, each quarter to hit at least RM23m.

Given that the acquisitions may not be completed that soon, the accretive earnings may not be recognized in time to make up the 64m number. The original core agrochem biz of Hextar is also slightly hampered by raw material cost increases as mentioned by its Chief Corporate Officer. 

At RM1.6b, it is already fully-future-valued. 

2) ANCOM

Ancom's FY21 PAT RM24m 
PE25 = RM600m market cap

Current market cap? RM366m

Management has guided FY22 PAT to be 20-25% better conservatively, given the slight delay in obtaining permits for construction of its new active ingredients chemical plant during MCO. But the good news is, the development order has been obtained as of early August, so things are already moving ahead. Plus, the PAT guidance is without the full consolidation of Nylex, which is expected to be completed by end-2021. 

Given that their FY calendar is June-May, we can expect additional RM8m PAT recognition from Nylex in second half of the FY. This is assuming Nylex hits 16m PAT, the avg PAT level for Nylex for the past 10 years (their last Q4 alone is 11m PAT!).

So, doing the same Proforma exercise as Hextar:

Ancom Proforma PAT = 24m
+ 20% growth = RM28.8m
+ recognition from Nylex consol 8m = RM36.8m

PE25 = RM920m market cap 

RM920m over enlarged share base post-consol 300m
= RM3.06 per share (114% upside)

Conclusion

Both Ancom and Hextar are the leading agrochem companies in Bursa, and thanks to them, I have made very handsome returns on my investments in both counters over the past few years. 

In terms of retail participation and liquidity, Hextar is no doubt the winner over Ancom at this stage. But in terms of valuation and the upside potential, I am placing my bets on Ancom for now. 

The price trend of Ancom may look stagnant for now but I have been informed that some institution funds have started taking positions in Ancom. We would be able to verify this once Ancom releases its annual report sometime end-Sep or early-Oct before the AGM. 

If it is indeed true that some funds are in the TOP30 shareholders, this would intrigue other funds to "take a look" at Ancom to see what they have been missing out.

Then once the price is hot, retailers will then start to "take a look" at Ancom to see why did they miss out this gem of a counter.

By then, perhaps liquidity would not be an issue anymore when the price is RM3+ because everyone would be chasing after it, just like how they chase Hextar now!

Stay safe and have a great weekend :)