Ancom Nylex hosted its quarter three financial year 2023 results briefing recently, revealing various aspects of its position. The decline of its industrial chemical division’s nine months financial year 2023 operating profit by 43.4% despite flattish revenue was mainly due to weakening global demand and was in line with the downtrend in oil prices, said Kenanga Research (Kenanga) in the recent Company Update Report.
Oil prices have since recovered following the recent move by OPEC+ to cut production by 1.1 million barrels per day. An uptick in prices of industrial chemicals in tandem with firmer oil prices should boost the division’s earnings from quarter four financial year 2023.
Competition in the agricultural chemical space has intensified with the return of Chinese exporters to the international market after
China’s reopening.
This has weighed down on average selling price for most of the group’s chemical products. However, Ancom Nylex is able to manage
the situation better, wielding a slight pricing power as the sole active ingredient producer in Southeast Asia.
Furthermore, there are only a handful of competitors in the region for its other products. It remains confident in a better financial year 2023 future.
But the onset of “El Niño” in certain regions over the next six months could jeopardise planting conditions and hence dampen the demand for herbicides.
Nonetheless, Kenanga believes this could be cushioned by the introduction of new product “T” in the first half of financial year 2024, and rising sales volumes of higher-margin products such as Bromacil and Ester.
Ancom Nylex is not ready to commit itself to a dividend policy as yet, but may do so once its net gearing is reduced significantly from 0.5x
as at end-Feb 2023.
Kenanga continues to favour Ancom Nylex for its position as the largest herbicide active ingredients producer in South-East Asia.
Also, it is a beneficiary of the widening ban on the paraquat use, and a proxy to global food production and food security goals.
Risks identified are such as the downturn in crop production in key markets, regulatory risk on active ingredients, and foreign exchange translation risk.
