Finding the right chemistry

WHEN talking to Lee Cheun Wei about Ancom Nylex Bhd, one would think he is a chemist. But he is very much a numbers person, an accountant by training.

A chemist he may not be, but Lee certainly has good chemistry with the company’s controlling shareholder Datuk Siew Ka Wei, 68, who serves as its executive chairman.

Lee, 50, who joined Ancom in 2009 as its group chief financial officer and was promoted to group chief executive officer (CEO) in January 2018. He assumed the additional role of managing director in March 2022.

On the other hand, Siew, a chemical engineer by training, has extensive experience in the field of petrochemicals, with more than 30 years in the local and international sectors.

Siew has a direct and indirect stake of 16.7% in the agricultural chemicals and herbicides manufacturer, while Lee has some 10.5% direct and indirect interest.

Together, the duo decided to restructure the Ancom Group, which had a diverse portfolio, to streamline its businesses to focus on being an integrated chemical company.

“From 2018, we turned the group from a conglomerate to where we are today: a very focused integrated chemical player. I handle the company’s day-to-day operations but important decisions are still made by both of us,” Lee tells StarBizWeek.

“We have a very synchronised view because today our structure is a result of both of us as substantial shareholders.

“That means we will continue focusing on core competency as the way going forward, and both of us are on the same page on this,” he adds.

As a result of its restructuring, Lee points out that the company has grown 10 times in terms of market capitalisation from RM100mil to RM1bil over the last four years.

“Gone are the days when we used to be a conglomerate, when people liked the idea of conglomerates. Nowadays, the banks and financial sectors don’t like it because you are not focused,” Lee says

He adds that previously as a conglomerate, the company did not have the competency due to diverse focus and was unable to generate economies of scale.

Prior to the restructuring, Ancom Bhd dealt with chemicals involved with crop protection, while Nylex (M) Bhd dealt in industrial chemicals. There was also Ancom Logistics Bhd, which consisted of infrastructure chemicals, including the trucks and also tank farms.

Under Ancom was also Redberry Sdn Bhd, which owns and operates various media platforms.

“I like to stay focused, considering that we have too many other businesses that we are not in the top three.

“Hence, we look at the companies where we have competency and economies of scale – that’s really our chemical businesses. Then I started the journey of transformation to refocus on chemical-related businesses where we have competency. Then we started divesting our non-core businesses in 2018,” he explains.

Sure enough, the benefits of restructuring started surfacing after two years, especially after divesting its non-core media business which has been a drag on its books.

Along the way, Lee says the company was already growing its agricultural chemical business. With the consolidation of the Ancom and Nylex businesses, the group now has a bigger and stronger balance sheet, enhancing its position as an integrated chemical player.

Ancom Nylex is the largest herbicide active ingredients (AIs) producer in South-East Asia.

The investing community is now more bullish on the prospects of the consolidated group. For instance, Kenanga Research recently issued a report following the announcement the company’s full-year results ended May 31, 2024 (FY24).

“We continue to like Ancom Nylex for its position as the largest herbicide active ingredients producer in South-East Asia, a beneficiary of the widening ban on paraquat use, a beneficiary of US-China trade tension as well as a proxy to global food production and food security goals,” the research house says.

Kenanga Research has maintained its forecasts, target price of RM1.50 and “outperform” rating, after the company finally signed a three-year supply contract for timber preservatives in June to a long-standing US customer.

It anticipates Ancom Nylex to fare better in FY25 and FY26, driven by stronger agri-chemicals contributions on robust timber preservative orders, better sales of monosodium methanearsonate (MSMA) herbicide, along with newer AIs.

“Our growth has been underpinned by our high contribution from the agri-chemicals sector, which is an essential sector for the food chain basically,” Lee says.

He envisions Ancom Nylex to continue strengthening its position as an AI producer for herbicides, as it is the only such player in South-East Asia.

“We want to look for a niche area (for smaller crops) where it is not so crowded. But by wanting to be involved in the bigger crops such as soybean and corn, it’s inevitable that we will cross paths with bigger companies,” he explains.

Lee says Ancom Nylex is working on AI number eight, which caters to cereal and soybean.

“When we filter the AI to be produced, we always look at all these factors. We continue to leverage our AI capability because of the friendliness of Asean as a business destination and trade partner for many international companies.”

While the company anticipates better results in FY25, Lee is wary about the rising freight costs, as it currently exports to more than 40 countries, contributing some 70% to its topline.

“We are affected by the increase in freight costs. We export a lot of our agri-chemical products. Our two top countries for export are Brazil and the United States. For example, to send a container from Malaysia to Brazil, it used to cost about US$3,200 to US$3,500 per container. Now, it’s running at US$9,000,” Lee shares.

However, he believes the company will be able to mitigate the rising costs, as its track record shows it has been able to effectively manage and overcome various challenges to continue delivering earnings growth.

Apart from consolidating its chemical business, Ancom Nylex has ventured into the animal healthcare business in China via the purchase of an 80% stake in Shennong Animal Health, which was founded in Malaysia and serves the local market.

This begs the question of whether Ancom Nylex is on the prowl for more mergers and acquisitions (M&As).

“We are looking at a few potential M&As but it’s too premature.We are always studying M&A opportunities that align with the group’s core businesses and growth philosophy and constantly look for ways to increase shareholders’ value.

“If there are any M&A that’s outside of the chemical business that may also have core competency, and we can exhibit the ability to drive them and have partners with core competency in a slightly different area but is in the bigger philosophical title within the group, then we look at it.

“But the key is we must have the competency.

“Otherwise, we can’t get involved. Of course, M&A is always driven by attractive pricing. Growth opportunities must also be there,” Lee says.