Malaysian leading agricultural chemicals and pesticides manufacturer, Ancom Nylex Berhad (ANCOMNY, 4758), recently released an impressive financial report, indicating year-on-year and quarter-on-quarter growth in net profits.

Before delving into ANCOMNY's latest quarterly performance, let's briefly review the company's background. 

According to ANCOMNY's official website, the company was established in 1969 and went public on the Main Market of Bursa Malaysia in 1990 under the name Ancom Berhad. At that time, the company had become one of Asia's largest chemical and pesticide manufacturers. Subsequently, in 2022, the company underwent business consolidation and acquisitions, rebranding itself as Ancom Nylex Berhad. As a result, ANCOMNY has evolved into a diversified company that engaged in various business activities, including the manufacturing and sale of agricultural chemicals, industrial chemicals, and polymers, as well as providing services such as logistics, media, and information technology.

Nonetheless, the core business of the company is still the manufacturing and sale of agricultural chemicals, including Monosodium Methanearsonate (MSMA), Diuron, Bromacil, Glyphosate, and other active ingredients used in formulating herbicides, fungicides, insecticides, and rodenticides, which find application in sugarcane, corn, wheat, cotton, pineapple, and palm oil plantations. Most of ANCOMNY's active ingredients are exported to overseas markets, including North America, Latin America, South Africa, New Zealand, Australia, Africa, Asia, and Oceania. Presently, the company's export footprint extends to more than 40 countries globally.

Based on the 2023 annual report, ANCOMNY's primary revenue comes from the Industrial Chemicals sector, which encompasses the production and sale of ethanol, phosphates, adhesives, and sealants, accounting for approximately 63.8% of the total revenue in the 2023 fiscal year. Following this are contributions from the Agricultural Chemicals sector (26.9%), the Polymers sector (4.2%), the Logistics sector (2.6%), and other business segments (2.5%).

It's worth noting that ANCOMNY serves as the holding company for NYLEX (4944) and ANCOMLB (0048), holding 42.21% and 33.96% of their respective shares.

Revenue Comparison (YoY -11.35%, QoQ +1.90%)

For the first quarter ending on August 31, 2023, the company's revenue stood at approximately RM487.36 million, representing an 11.35% decline compared to the same period last year (RM549.81 million). This decline was attributed to a decrease in selling prices and volume for industrial chemicals. Additionally, a drop in agricultural chemical product prices also impacted the company's revenue. However, the decrease in prices was due to reduced raw material costs.

Out of the RM487.36 million in revenue, approximately RM307.58 million was generated from the Industrial Chemicals sector, marking a year-on-year decrease of about 10.52%. About RM173.05 million was derived from the Agricultural Chemicals sector, showing a similar year-on-year decline of around 20.85%.

Nevertheless, when compared to the previous quarter, the company's revenue increased by approximately RM9.11 million or 1.90%.

Net Profit Comparison (YoY +3.84%, QoQ +14.41%)

Despite the decrease in business revenue, the company's net profits exhibited year-on-year and quarter-on-quarter growth of approximately 3.84% and 14.41%, reaching around RM20.80 million.

According to investment analysts, this growth can be attributed to increased orders from U.S. clients for a high-margin wood preservative (one of ANCOMNY's agricultural chemical active ingredients). Reportedly, the order volume from these clients increased from 3,000 to 4,000 metric tons annually in the 2023 fiscal year to 8,000 to 10,000 metric tons in the 2024 fiscal year.

Outlook

The company anticipates the El Nino weather phenomenon to persist until 2024. Consequently, the high-temperature, dry climate is expected to reduce crop yields, impacting the demand for agricultural chemical products. Moreover, global economic challenges stemming from geopolitical tensions and tightened monetary policies continue to cast uncertainty over the global economy.

Despite these challenges, the management remains committed to prudent risk management and exploring opportunities for business expansion.

Furthermore, it's worth noting that the company has recently engaged in share buybacks. So, dear readers, what are your thoughts on ANCOMNY's recent initiatives?

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Disclaimer: The above is purely for educational purposes and reflects personal opinions. It does not constitute any buying or selling recommendations.

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