PETALING JAYA: Ancom Nylex Bhd
has sorted out issues with importing intermediates of Chemical T from China by securing necessary clearance and permits, says Hong Leong Investment Bank Research (HLIB Research).
Chemical T is applied in the planting of sugarcane crops.
To accelerate procurement, Ancom Nylex has also decided to produce the intermediates in-house for the active ingredient of Chemical T the research house added.
“Installation of a new machine for this process will be completed by July and should lead to commercialisation of Chemical T by September 2024.
“Ancom Nylex is already producing some samples of Chemical T for its customers,” HLIB Research said in a note yesterday.
Ancom Nylex is the largest producer of herbicide ingredients in South-East Asia.
Last December, HLIB Research said in a research note that the estimated annual incremental revenue from Chemical T will be about RM90mil for Ancom Nylex, based on an average selling price of US$18-US$20 per tonne.
Meanwhile, Kenanga Research noted that Ancom Nylex has opted to improve the stability of a key intermediate chemical input by investing one step upstream to produce the input in-house.
“Reactors and training have been arranged but full scale, stable-state run of the active ingredient for Chemical T is pushed out by another six to 12 months,” it said in a note yesterday.
Looking ahead, Kenanga Research pointed out that Ancom Nylex’s earnings expansion in the financial years 2024 to 2025 (FY24-FY25) will be partly underpinned by the rising demand for monosodium methanearsonate (MSMA) herbicide.
It is noteworthy that the company expanded its annual MSMA capacity from 11 million litres to 15 million litres recently to prepare for sales beyond sugarcane to include soybean in Brazil, where soy acreage is four to five times larger than sugarcane, entry into Indonesia, and the recovery in Thailand after a slow season.
The research house also noted that Ancom Nylex’s earnings will be supported by the streamlining of its industrial-chemicals business, which suffers from thin margins.
“To improve margins, Ancom Nylex is reviewing its cost base. Relocation of its southern storage facility from Singapore to Johor is due to start in the first half of FY25 but will need two to three years for full relocation,” the research house said.
Kenanga Research has maintained its “outperform” view on Ancom Nylex, with an unchanged target price of RM1.50 per share.
HLIB Research also has a “buy” call on the chemicals manufacturer with a target price of RM1.47.
It said the reverse takeover to be undertaken by Ancom Nylex’s 34%-owned subsidiary Ancom Logistics Bhd (ALB) will be earnings accretive for Ancom Nylex.
ALB announced that it will acquire Green Lagoon Technology (GLT) for RM120mil via an issuance of one billion new ordinary shares at 12 sen per share.
Meanwhile, Ancom Nylex will subscribe to 183 million new ALB shares for RM22mil cash at 12 sen per share.
Effectively, this will dilute Ancom Nylex’s stake in ALB to 21%.
“The acquisition of ALB comes with a profit guarantee of RM8mil and RM10mil for the first and second year, respectively following completion of the exercise.
“GLT has completed 60 biogas-related projects in Malaysia and Indonesia with ownership of over 25 megawatts of power assets. This exercise will be earnings accretive to Ancom Nylex via incremental net associate contribution of about RM1.7mil (based on RM8mil net profit),” said HLIB Research.
However, the research house was neutral on the proposed acquisition of ALB’s existing subsidiaries.
Ancom Nylex announced earlier it would acquire all of ALB’s subsidiaries in cash at a value to be determined later.
ALB’s current businesses are mainly the operation of bulk storage facilities for liquid chemicals in Port Klang and provision of bulk liquid chemical transportation services to petrochemical complexes in Malaysia and Singapore.
“We are cautious on this development as ALB’s existing businesses were barely at breakeven or incurred minor losses over the past years and the outlay for the acquisitions will deteriorate its ability for future dividend payouts,” said HLIB Research.
