PETALING JAYA: Agricultural chemicals (agrichem) and herbicides manufacturer Ancom Nylex Bhd
, which bottom line was impacted by higher freight expenses in the first quarter of financial year 2025 (FY25) ended Aug 31, 2024, plans to gradually pass on the cost increases to customers in the coming quarters.
Hong Leong Investment Bank (HLIB) Research reported that Ancom Nylex’s core earnings of RM13.8mil for that quarter fell short of its estimates due to a surge in freight costs, as China rushed to ship goods ahead of the United States’ scheduled tariff hike in August.
The research house said container freight rates to Argentina and Brazil had tripled from March to July, resulting in a RM7mil increase in the group’s freight expenses quarter-on-quarter.
However, shipping costs have been declining from August through October, down by 30% from their peak, although they remain higher than the low levels seen earlier this year.
Looking ahead, HLIB Research said the group’s agrichem sales volume, especially for monosodium methanearsonate (MSMA) herbicide, is expected to grow in its FY25 ending May 31, 2025, given the relatively wet weather condition in South-East Asia, coupled with some order diversion away from its Israeli competitor.
Ancom Nylex has submitted its MSMA label registration for soybean crop in Brazil and aims to secure approval by mid-2025.
“We note that soybean acreage in Brazil is five times larger than its sugar cane crops. Currently, 11,000 out of the 15,000 litres per annum capacity is being utilised.
“Given its huge addressable market of over 100,000 litres per annum, successful penetration into the Brazilian soybean market may warrant Ancom Nylex an MSMA capacity expansion,” said HLIB Research.
Ancom Nylex’s chemicals T and S are expected to come online next year.
The brokerage said production of Chemical T faced further delay to the first quarter of 2025 (1Q25) due to ongoing installation of the phosgenation line to produce the intermediates in-house.
Ancom Nylex targets to start mass production of its new active ingredient (AI), Chemical S, by 2Q25 following the completion of machine installation by 4Q24.
“Chemical S will be applied on rice and cereal crops aimed at the Brazilian market.
“We view the new AI as another key earnings driver as management estimates its selling price to be four times higher than chemical T,” HLIB Research noted.
While the intermediates for chemical S are sourced from China, the research firm said Ancom Nylex has reassured that there should be no harmonised system code issues in importing the intermediates.
Taking into account the higher finance costs and lower margins assumptions to account for higher freight costs, HLIB Research has cut its earnings forecasts for Ancom Nylex for FY25 to FY27 by 20%, 10% and 9%, respectively.
The stock’s target price is trimmed by two sen to RM1.24 a share, pegged to a price-to-earnings (PE) multiple of 15 times on its FY26 earnings.
The ascribed valuation is at a slight discount to its global peers’ average PE of 17.5 times, it added.
