Ancom Nylex’s 1HFY24 result misses expectations

Agri-chemical manufacturer Ancom Nylex Bhd’s (Ancom Nylex) first half of financial year 2023 (1HFY24) core net profit (CNP) of RM43 million missed expectations, says the research arm of Kenanga Investment Bank Bhd.

In a results note, the research arm reported that the group’s 1HFY24 CNP of RM43 million had only met 43 per cent of its full-year forecast but only slightly missed market expectations as it met 46 per cent of full-year consensus estimates.

Kenanga Research detailed that the negative variance in its forecast was due to weaker than expected logistic earnings and higher corporate expenses which offset the group’s achieved stronger agriculture and industrial chemical profits.

Despite the missed expectations, the research arm believed that Ancom Nylex’s outlook and margins remained intact due to sustained demand and the group’s focus on less competitive niches in the price sensitive agri-chemical market.

The group’s monosodium methanearsonate (MSMA) has a positive outlook as it is seen as an alternative herbicide to Paraquat which is facing widening bans globally due to toxicity concerns.

“While El Nino brings dryness to Southeast Asia which reduces requirements for weed-killers, it brings wet weather to Latin America thus stimulating robust MSMA orders from Brazil. Moving forward, Ancom Nylex is seeking regulatory approvals to broaden its Brazilian MSMA sales beyond sugarcane to soyabean,” the research arm reported.

Similarly, the group’s timber preservative orders that boast superior margins to other traditional agri-chemical lines remain healthy with a strong market position and ongoing negotiations with an old US customer for a longer-term contract expected to finalise soon.

The group’s newest product lines, Bromacil and Ester to target pineapple and cereal markets are still small but growing well.

Meanwhile, Ancom Nylex is also targeting to launch two to three new products over FY24 and FY26 which will support their earnings visibility further.

Among these new products is Tebuthluron which have experienced a six month delay but is now expected to have production commence in 1Q24.

To reflect the missed expectations and further delays in the launch and scaling up of Tebuthluron, Kenanga Research cut its FY24 and FY25 net profit forecasts by six and 13 per cent to RM95.2 million and RM115.4 million, respectively.