ANCOMNY’s 9MFY23 results met expectations. Net profit jumped 57% YoY driven by higher sales volume, improved performance at its logistics division, and normalisation of effective tax rate. Going forward, its growth prospects will be driven by capacity expansion for monosodium methanearsonate (MSMA)-related products as well as the introduction of new product “T” by end-CY23 to cater to the rising global demand for agricultural chemicals. We maintain our forecasts, TP of RM1.80 and OUTPERFORM call.

Within expectations. 9MFY23 core net profit came in within expectations at 77% of our full-year forecast and 74% of full-year consensus estimate.

Results’ highlights. YoY, 9MFY23 revenue rose 8%, largely driven by higher sales volume in its agricultural chemical division fuelled by demand for MSMA-related products as a replacement for Paraquat following its ban in Thailand. Meanwhile, its logistics revenue increased with the consolidation of the results of One Chem Terminal Sdn Bhd (which became a 51%-owned subsidiary in May 2022 from a 40%- owned associate previously). There was also a pick-up in its media and IT businesses.

However, 9MFY23 EBIT increased by a much larger 25% YoY due to improved performance at its logistics division, though partially offset by margin erosion at its agricultural and industrial chemical segments on softening selling prices.

Thanks to normalisation of its effective tax rate following the completion of its corporate restructuring exercise, 9MFY23 net profit surged 57% YoY.

Strong growth prospects. Looking forward, ANCOMNY’s growth prospects will be driven by: (i) expanding capacity for the production of MSMA-related products at its Shah Alam plant, (ii) its rising market share in Thailand underpinned by the phasing out of Paraquat, and (iii) the introduction of new high-margin product “T” by end-CY23.

Forecasts. Maintained.

We also maintain our TP of RM1.80 based on FY24F PER of 15x, at a 30% discount to the average forward PER of regional agriculture chemical peers of 22x to reflect its smaller market capitalization. There is no change to our TP based on ESG given a 3-star rating as appraised by us (see page 4).

We continue to like ANCOMNY for its position as: (i) the largest herbicide active ingredients (AI) producer in South-East Asia, (ii) a beneficiary of the widening ban on the Paraquat use, and (iii) a proxy to global food production and food security goal. Maintain OUTPERFORM.

Risks to our call include: (i) downturn in crop production in key markets, (ii) regulatory risk on AI, and (iii) foreign exchange translation risk.

Source: Kenanga Research - 19 Apr 2023