Ancom Nylex Bhd’s margins are expected to hold with earning growth driven by timber preservatives, monosodium methanearsonate (MSMA), and the launch of new active ingredients (AIs) such as Tebuthiuron in the near term.
In its Company Update today (Jan 19), the group’s guidance for FY24 and 25F earnings corresponds broadly with Kenanga Research’s expectation.
Hence, the research house maintains its OUTPERFORM call, its forecasts and TP of RM1.50, based on 13x FY25F price-earning ratio (PER).
“(It is) only about half the forward PER of much larger regional agriculture chemical peers. There is no change to our TP arising from its 3-star ESG rating which is appraised by us,” it said.
The research house said the group remained positive of its FY24-25F growth prospects.
This is despite challenges such as a 6-month delay in the commercial launch of its new product Tebuthiuron, the tripling in shipping freight rates amidst heightened tensions in the Red Sea and the still soft agrichemical market, it said.
“Ancom Nylex is pinning its hope on favourable timber preservative orders looking set to continue into FY25. Margins for timber preservative are good, hence healthy order is set to help to lift overall FY24-25F profit margins,” it added.
Besides that, it said that the group also betting on positive MSMA outlook, as one of its main competitors is from Israel could be impacted by Red Sea tension should it escalate.
“Further escalations may lead to some customers buying from Ancom Nylex. The group has also completed capacity expansion from 11 million to 15 million litres a year earlier than we expected.
“Hence, it will be ready to meet any such orders. Most of the new capacity is meant for Brazil, first time exports to Indonesia and recovery in Thailand,” it added.
Lastly, Kenanga said the group is banking on Tebuthiuron as its production will start soon after a six-month delay.
“The first batch of 4 metric tonnes of a key input chemical is now on the way from China after export code and customs clearance were given.
“An initial run looks likely in February or March but will still require another 3 to 6 months for proper scale up. Meanwhile, the fit-out at another plant (factory C) to produce a new product (AI no. 8 or AI ‘S’) should be completed by end of CY24, in 2Q or 3Q of FY25.”
The research house said it continue to like Ancom Nylex for its position as the largest herbicide active ingredients producer in Southeast Asia, a beneficiary of the widening ban on Paraquat use, a beneficiary of US-China trade tension and being a proxy to global food production and food security goal.
The risks to its call include downturn in crop production in key markets, regulatory risk on AI, and foreign exchange translation risk.
