Ancom Nylex eyes earnings rebound as Brazil herbicide demand grows

KUALA LUMPUR: Hong Leong Investment Bank Bhd (HLIB) expects Ancom Nylex Bhd to see an earnings boost, citing strong growth in demand for its herbicide ingredient in Brazil's soybean market. For each extra million litres sold, Ancom Nylex could add RM4.5 million to RM5 million to its net profit. Currently, monosodium methyl arsonate (MSMA) only holds a market share of less than one per cent in Brazil, with Ancom Nylex aiming for a share between one to two per cent and anticipate sales ranging from one million to two million litres annually.

Higher Brent prices could further bolster industrial chemicals margins due to increased selling prices.

Despite potential challenges from freight costs and a possible El Niño, HLIB predicts stronger MSMA sales volumes will help the company recover earnings. MSMA orders from Brazil's soybean market are on the rise after receiving label approval in March 2026, with distributors starting sales in key regions like Mato Grosso do Sul, Mato Grosso, and Goiás.

Shipments are projected to more than double from around 160,000 litres in September to approximately 360,000 litres in October and November, before dropping to about 260,000 litres in December.

However, HLIB warns that a potential El Niño at the end of 2026 could disrupt rainfall patterns, affecting planting activities and herbicide applications, which could both boost and reduce demand depending on the situation. Nevertheless, HLIB believes the company's diversification across different regions could help offset these risks.

HLIB continues to see healthy demand for MSMA from the Brazilian soybean market, while Malaysia and Australia might experience softer demand due to drier weather conditions. HLIB has kept its earnings forecasts and buy rating on Ancom Nylex, maintaining an unchanged target price of RM1.27 based on 15 times its financial year ending May 2027 earnings per share.