A thriving upstream agrichemical powerhouse with over 50 years of track record. ANCOMNY is the sole agrichemical active ingredients (AI) manufacturer (highly specialised in nature with high barrier to entry) in ASEAN and one of the largest in Asia Pac, as well as an industrial chemicals producer, with global presence in over 40 countries (Malaysia: 31%, ASEAN ex-Malaysia: 23% and ROW: 46%). Other businesses include logistics, polymer, media and investment holdings. In FY5/22, the agrichemical segment accounted for 81% of ANCOMNY’s PAT.

Robust growth of 28% earnings CAGR for FY22-25. We expect ANCOMNY to record promising growth from FY23 onwards, mainly driven by its expanding agrichemical business as demand for the products will be underpinned by the global goal of achieving food security. Key catalysts include: (1) the ban of Paraquat, a very popular herbicide in Brazil and Thailand, which created huge vacuums in these markets for 2 of Ancom’s formulations, Dasaflo and Monex (identified as close substitutes), (ii) growth coming from new high margin AIs (i.e. Bromacil and Ester) targeting markets in the US, Mexico, Japan, Indonesia and Australia, (iii) additional income stream from Shennong Group as ANCOMNY strives to be an integrated solutions provider across the food supply chain, (iv) reap benefits from the consolidation of Nylex (recognise 100% of the business’ profit vs 50% previously) as the group is now one of the most integrated chemical groups in Southeast Asia and (v) improvement in tax management (benefitting from tax credit in the next few years).

Oversold rebound on the cards. At RM1.00, ANCOMNY is only trading at 9.7x FY24E P/E vs peers 20.6x (+53% upside against HLIB Research non-rated TP of RM1.53). After sliding 38% from 52-week high of RM1.36 (28 Feb) to a low of RM0.835 (15 July), the stock staged a relief rally to close at RM1.00 last Friday. We expect share price to stage a symmetrical triangle breakout soon, underpinned by bottoming out RSI and MACD golden cross, a strong close above 20D MA and robust trading volume. Further successful breakout above RM1.03 (downtrend line) may spur prices higher towards RM1.10-1.23 levels. On the flipside, downside support can be found at RM0.95-0.97 levels. Cut loss at RM0.925.

Source: Hong Leong Investment Bank Research - 17 Oct 2022