$ANCOM / 4758 (ANCOM BERHAD) - highest quarterly net profit in 14 years, 1H2022's profit is almost FY2021's profit & company has clear earnings visibility into FY2023

In a choppy market, you’d want to invest in companies which provide earnings growth and visibility. Ancom provides that, whilst being in and around important theme of food security.

The company hit quarterly profit of RM12m in q2 2022, on the back of stronger demand of their products, especially in ASEAN. On why This is, had been covered on previous notes. (Factor of BTC - please scroll up). This would continue for the remaining of FY2022 where it was mentioned during the briefing that it is “reasonable to assume” that 1H2022 can be replicated thus FY2022 to be above RM40m, thus almost doubling FY2021 due to the company catching up to order and so on.

Most interestingly though - is that this progression, should continue into FY2023 (July22-June23). Barring bad weather or natural disaster, FY2023 could be an even better year for Ancom due to a couple of catalysts:

1) New acquisition of Shennong Group in livestock chemicals which comes with profit guarantee - a few mil profit can be expected from here. @terence775 covered this above. The synergy of plant base and livestock base chemical could be massive too.

2) Some tax efficiency from internal restructuring and consolidation at corporate level

3) Full consolidation of Nylex - whilst Nylex performance can be pretty cyclical in nature, the company is in a good cycle looking at oil prices and general economic activity

4) Bigger pie from Thailand market coming from their Paraquat ban and Ancom's product as a close substitute. In FY21, Ancom delivered 30 containers to Thailand. This number is going to be 4x or 120 containers in FY22 and could look to grow by additional 50-100% further in FY23 if all is in order.

5) More organic sales from Malaysian market selling their products to planters as CPO prices remain elevated.

6) New distributor in Brazil to replace a distributor lost in FY21

7) New AI coming online, especially for new molecule (Label T) - which could potentially generate up to RM180m revenue based on today’s prices. Margin is assumed to be at 15% gross margin initially.

:sunglasses: New potential customers from US as a substitute to Chinese suppliers in an era of US China trade war.

Assuming RM40m for FY2022 and a mere 50% growth from catalysts above to RM60m for FY2023, Ancom is trading at 21x and 14x pe today. Still upside to local peer $HEXTAR / 5151 (HEXTAR GLOBAL BERHAD)'s multiples

Exciting times ahead, I'm staying invested.

p.s. would also like to give kudos to Ancom's management team whom had been very transparent since late 2019 on the business transformation and executing / delivering the strategies put out.

Also as providing clear communication to the investment community throughout, something of note in an era where ESG is important.

cc: @victoryong @leonjakelim @ValinV @seastockmarket @gibsontan