KUALA LUMPUR (Dec 11): Hong Leong Investment Bank (HLIB) Research has maintained its “buy” call on Ancom Nylex Bhd, a manufacturer and seller of chemical products, and a target price of RM1.65 based on 17.5 times forecast financial year 2024 (FY2024F) of earnings per share.

In a research note on Monday, HLIB Research highlighted that it likes Ancom Nylex for its niche of being the sole large-scale producer of active ingredients for herbicides in Southeast Asia, as well as its strong earnings growth potential, driven by a pipeline of new active ingredients to be rolled out.

The research house has maintained its earnings forecast for the group, projecting a core net profit of RM92.8 million for FY2024 and RM112.2 million for FY2025, representing a growth of 25.6% and 20.9% respectively.

On its outlook, HLIB Research said Ancom Nylex’s Shah Alam plant will benefit following the installation of its new production line of herbicide monosodium methanearsonate (Msma), that is expected to raise its output to 15,000 litres per annum, from 13,000 litres per annum.

HLIB Research also noted that Ancom Nylex’s production line for timber preservatives (AI4) is running at more than an 85% utilisation rate of 15,000 metric tonnes (MT).

“We believe the take up for AI4 will remain robust, as an existing US customer is forming a three-year agreement with Ancom to secure most of its capacity for AI4 from 2024 to 2026, following the former’s (US customer’s) decision to cease production for AI4 and outsource it to the latter (Ancom),” said HLIB Research.

Moreover, the research house said Ancom Nylex’s new production plant in Port Klang is expected to commence production of Chemical T, a chemical applied in sugar cane crops, by the end of 2023, with an initial production rate of 1,000 MT per annum, out of a 2,000 MT installed capacity.

Based on an average selling price of US$18-US$20 per MT, HLIB estimated that Chemical T would bring in an annual revenue of about RM90 million, which is expected to grow further, as demand and production expands over time.

In addition, HLIB Research added that the group will also benefit from its growing production of Chemical S, a chemical applied in rice and cereal crops, as the average selling price of the product would be significantly higher than Chemical T, providing another level of growth to Ancom Nylex in financial year 2025 (FY2025).

At the time of writing in Monday, shares of Ancom Nylex opened two sen or 1.77% lower at RM1.11, valuing the group at RM1.12 billion.