Ancom Bhd (Fundamental BUY with TP RM0.90)

• We are positive on Ancom Bhd (“Ancom”) prospects and growth trajectory of their agrichemical business. Contributing over 70% of profit with gross margins of >15%, this division is supported by a 4- year CAGR of over 25% in both revenue and profits.

• BUY with a target price of RM0.90 premised on 12.5x PER FY21 being 2-year average PER and comparable to its peers.

• A bright spot amid Covid-19 pandemic as their subsidiaries are experiencing surge in demand which manufactures ethanol, an active ingredient in sanitisers.

• Part of its business includes manufacturing of hand sanitisers, hygiene and sanitisation services plus sterilisation of spaces in the wake of gradual opening of most businesses post CMCO.

• Ancom’s foray into sanitiser production is complementary to their existing business as gross margins are fairly lucrative ranging between 25-40%.

• Core business and hidden jewel lies in their subsidiary Ancom Crop Care Sdn Bhd which contributes 70% of the profit to Ancom Bhd, involving in agriculture chemicals which are part of the food supply chain predominantly used in sugar cane plantation, palm oil plantations.

• Ancom Crop Care Sdn Bhd made RM35m net profit in FY19 and we expect the Group to maintain its profitability over the next 2 years with agribusiness to be key driver delivering earnings growth with new products to come onstream by FY21.

Source: Rakuten Research - 13 May 2020