Ancom Nylex seen to gain from paraquat ban

The ban is expected to improve demand for Ancom Nylex’s formulations, considered close substitutes for paraquat.

PETALING JAYA: Ancom Nylex Bhd’s agriculture chemicals business is set to benefit from the ban on use of paraquat in Thailand and Brazil.

With the ban, there will be demand for Ancom Nylex’s formulations, namely, Dasaflo and Monex HC, which are identified as close substitutes to the banned poisonous herbicide.

Hong Leong Investment Bank (HLIB) Research said the group’s exports to Thailand have increased significantly in 2021 and 2022 since the ban was enforced there in 2020.

“We note the group is also working on getting both formulations to Brazil for the soybean industry – which has a paraquat replacement market of about five times larger than Thailand,” HLIB Research noted in a report on the niche producer of active ingredients.

Active ingredients are the key chemical compound used in herbicides, insecticides and fungicides.

The paraquat replacement market in Thailand is estimated to range between US$60mil and US$80mil (RM261mil and RM349mil) annually, while the global market size was estimated to be around US$850mil (RM3.7bil) in 2020.

Sensing the market opportunity, Ancom Nylex is increasing capacity of its existing monosodium methanearsonate (MSMA)-based products by 30% by the end of this month. The company already has a 50% market share in the global market for the product, HLIB Research noted.

The group is also building a new 70,000 sq ft facility on the land adjacent to its existing plant in Klang, which will boost the group’s annual capacity by 4,000 tonnes (additional 9.5%).

The new facility is slated to be commissioned in the second half of 2023 and produce two new active ingredients (Chemicals T and S).

The group’s new formula, Chemical T, is a highly technical product and requires some input from the group’s technical engineering partner in China before Ancom Nylex is able to commission and roll out the new product.

Another factor driving interest in the agriculture chemicals group is the belief that population growth across the world will need to be matched with growth in food production.

“Ancom Nylex’s active ingredients are used in growing the food we eat and it is the sole agriculture chemical active ingredient producer in South-East Asia and one of the largest in the Asia-Pacific,” HLIB Research said, adding that high barriers to entry is another factor in favour of the group.

Ancom Nylex’s earnings growth shows no signs of slowing down, the research outfit noted. It posted a record high core net profit of RM62.6mil in financial year 2022 (FY22) and HLIB Research projects its net profit to grow by 22%, 45% and 18% for FY23-FY25 respectively or at a compounded annual growth rate of 28%.

Ancom Nylex does not have a dividend policy at present as priority is placed on paring down borrowings to strengthen its balance sheet in preparation for future growth plans.

As at end-November 2022, the group had a RM140.4mil cash pile and total borrowings of RM412.2mil. HLIB Research has initiated coverage of the company with a “buy” call and a target price of RM1.73 a share.

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