ANCOMNY’s 1QFY24 results met market expectations but fell short of our forecast. Its 1QFY24 net profit grew 11% YoY driven by stronger agri-chemicals and polymer margins, which more than offset weaker industrial chemical and logistical performance. We cut our FY24-25F net profit forecasts by 8-3%, lower our TP by 17% to RM1.50 (from RM1.80) but maintain our OUTPERFORM call.
Its 1QFY24 core net profit of RM21.1m (+83% QoQ, +11% YoY) fell short of our expectation at only 19% of our full-year forecast but met market expectations at 21% of the full-year consensus estimate. The variance against our forecast came largely from: (i) softer industrialchemical sales and margins, and (ii) lower revenue from its logistics business although its margins held better. These were partially cushioned by a strong showing from agri-chemicals on greater proportion of higher margin timber preservative revenue.
The competition in the agri-chemicals space was still stiff, though had somewhat stabilised. Its finance cost was higher than expected on rising cost of borrowing even as net gearing eased QoQ, from 49% in 4QFY23 to 41% as at end 1QFY24. Altogether, the first quarter performance was good despite the lower revenue which was mitigated by higher margins.
While we cut our FY24-25F net profit forecasts by 8-3%, the earnings growth is still strong at 32% in FY24 and 29% in FY25 underpinned by:
Correspondingly, we lower our TP by 17% to RM1.50 (from RM1.80) based on 15x FY24F PER, at a 30% discount to the average forward PER of regional agriculture chemical peers of 22x to reflect its smaller market capitalisation. There is no change to our TP arising from its 3- star ESG rating which is appraised by us (see page 4).
We continue to like ANCOMNY for: (i) its position as the largest herbicide active ingredients producer in South-East Asia, (ii) it being a beneficiary of the widening ban on Paraquat use, and (iii) it being 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, and (iii) foreign exchange translation risk.
Source: Kenanga Research - 18 Oct 2023
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Created by kiasutrader | Aug 23, 2024
Created by kiasutrader | Aug 23, 2024