Eagle Vision Invesment

We are positive on Ancom Bhd (“Ancom”) prospects and growth trajectory of their agrichemical business. This division contributes over 70% of group’s profit with decent gross margins of over 15%. Its 4-year CAGR is solid of over 25% in revenue and profits. As such, we believe Ancom will see better days in FY21 when its restructuring gains traction. BUY with target price of RM0.90 premised on 12.5x PER FY21 being 2-year average PER and comparable to its peers.

Ancom’s key driver and hidden jewel is their agrichemical business under Ancom Crop Care Sdn Bhd. The other major asset being its 48.95% stake in Nylex Bhd which is in the industrial chemical business that has hit a sweet spot amidst the Covid-19 pandemic. It is experiencing surge in demand for their ethanol production, an active ingredient in sanitisers. Its business of manufacturing hand sanitisers and hygiene and sanitisation services is the new normal in the wake of gradual opening of most business post CMCO. Ancom’s foray into sanitiser production is complementary to their existing business as the margins are fairly lucrative with gross margins ranging between 25-40%.

Core business and hidden jewel lies in their subsidiary Ancom Crop Care Sdn Bhd which contributes over 70% of the profit to Ancom Bhd. Agriculture chemicals which are part of the food supply chain are predominantly used in sugar cane plantation, palm oil plantations. It has reported FY19 net profit of RM35m and is expected to maintain is profitability for FY20 and FY21. This value however is trapped at group level which is undergoing restructuring as their other business has been a drag such as media that realised over RM12m loss for FY19.

Nevertheless, we still expect Ancom Bhd to remain profitable with agribusiness to be the key driver delivering earnings growth via expansion of capacities and new products for the agribusiness coming onstream by FY21. This would catapult group’s earnings and expect growth momentum to continue with EPS to chart double digit growth for FY21 and beyond.

And these are some good points

1) ANCOM 4-Year CAGR is solid of over 25%

2) Seeing better days ahead Rakunten gave a PER12.5 Target Price for Ancom at 90 sen

That is too modest. The Surge in NYLEX will lift up Ancom past Rm1,00 to Rm1.20 possible

3) Ancom owns 48.95% of NYLEX

 The other major asset being its 48.95% stake in Nylex Bhd which is in the industrial chemical business that has hit a sweet spot amidst the Covid-19 pandemic. It is experiencing surge in demand for their ethanol production, an active ingredient in sanitisers.

Nylex has Hit a SWEET SPOT in Covid 19 pandemic!

Nylex is experiencing SURGE IN DEMAND for their ethanol production, an active ingredient in sanitizers

So Both Nylex & Ancom will benefit tremendously from the Upward Surge of Demand for Sanitizers

Gloves, face masks & isolation gowns are defensive

Only sanitizer is Offensive

Glove, face mask & isolation gown protect from Covid 19

Only SANITIZER ATTACK AND KILL CONONAVIRUS

Sanitizers with at least 65% to 95% Ethanol contect is effective against Covid 19

Now that MCO lock down is gradually opening up we can expect AN UPSURGE OF DEMAND for SANITIZER

We should have sanitizer in our home and office, in factory or fish market.

And then entire street, town or city should be disinfected by sanitizer

Only Sanitizer can attack all the invisible covid 19 lingering out there

And Sales of Ethanol by Nylex will skyrocket

Sale of Sanitizer by Entopest of Ancom will increase manifold

THIS IS THE TIME TO LOAD UP BOTH NYLEX AND ANCOM

Nylex Target Price is Rm1.50 (If Market goes Crazy like Comfort gloves then Nylex can reach Rm2.00 target)

Target price for Ancom is Rm1.20 (With Uplift from Nylex)

Best regards

Calvin Tan Research

Singapore May 14th, 2020

Please buy/sell after doing your own due diligence. In doubt please consult your Remisier or Fund Manager

Stop Press!

Latest news from Ancom

ANCOM [4758]

🔹Businesses:
Petrochem – 47%-owned Nylex Bhd
Logistics – 46%-owned Ancom Logistics Bhd
Miscellaneous – media advertising, education, IT etc.
Agrochem – 100% subsidiary Ancom Crop Care Sdn Bhd (ACC)

🔹Crown jewel of Ancom: ACC
the most profitable company within the group

🔹ACC is the only agrochem manufacturer producing Active Ingredients (AI), as well as formulating own AI into proprietary cocktail products. The other listed agrochem co such as Imaspro and Hextar are formulators, i.e. need to source AI from China to be formulated in Malaysia.

🔹High barrier of entry: ACC’s manufacturing site is approved by EPA, Environmental Protection Agency of USA. This gold standard for manufacturing not only allows ACC to sell into US market, but greatly improves its penetration into other markets.

🔹Long gestation period: each product needs to be registered with relevant authorities of each country before being allowed to enter. In Malaysia, average registration period with Pesticide Board is 1.5 to 2.5 years. The longest registration that ACC had experienced was 7 years for Brazil market. Since being established in 1969, ACC owns more than 50 registrations across 40 over countries.

🔹ACC’s new target markets would be Central Asia, registrations ongoing.

🔹ACC’s products primarily serve major crops such as palm oil , sugarcane, cotton, and timber. Main users in Malaysia (33% of ACC’s revenue source) are big plantation players such as FGV, IOI etc. Brazil is ACC’s second largest market out of Malaysia, at 13% of ACC’s revenue due to Brazil having the largest hectarage of sugarcane in the world.

🔹Dominance in niche market: ACC specializes in molecules that have niche markets. Each of ACC’s active molecules command between 40-50% of world market share, which shows an oligopolistic situation.

🔹ACC plans to increase product portfolio from 4 AIs to 8 AIs where new AIs command even more premium pricing due to lack of supply in world markets.

🔹Financial performance of ACC has grown tremendously over the past 4 years. Over 4 years, revenue jumped from RM100m to RM300m, PBT from RM18m to RM47m last year, historical high. Growth was led by current MD of ACC, Mr Lee Cheun Wei, also the Group CEO of Ancom.

🔹Overall group performance was affected by Nylex’s results over past 2 years as the trading division suffered losses due to downtrend of oil prices and world oversupply of methanol. With uptrend in oil prices, Nylex is expected to recover and normalize to past profit levels of RM20-30m annually.

🔹Majority stake in loss-making media unit has been sold to listed Thai company VGI, a RM10billion market cap co. Going forward, financing and operations of media unit shall be lead by VGI. Ancom retains a minority 30% interest which may hold value in successful turnaround of media biz.

In a nutshell, disposal of loss-making media unit and normalization of Nylex’s trading division, will allow the true colors of ACC to shine and be reflected in the group results going forward.

Remarks:

For your better understanding,

the 2 inter-related companies, are working closely and have closely intertwined together

JUST LIKE HAND AND GLOVE SITUATION NOW