Ancom remains focused on growing agrochemicals segment

This article first appeared in The Edge Malaysia Weekly, on August 10, 2020 - August 16, 2020.

By Liew Jia Teng/The Edge Malaysia

Lee: Ancom as a group will continue to be driven by ACC. (Photo by Shahrin Yahya/The Edge)

ANCOM Bhd — a locally listed diversified group controlled by prominent businessman Datuk Dr Siew Ka Wei — was in the limelight last month after announcing a proposed restructuring exercise involving its two business units, Nylex (M) Bhd and Ancom Logistics Bhd.

The corporate exercise is expected to unlock the value of Ancom’s investment in Ancom Logistics, while streamlining and strengthening its industrial chemical distribution business in Nylex.

The proposed reverse takeover of Ancom Logistics notwithstanding, Ancom group CEO Lee Cheun Wei says his long-term focus remains on the group’s most profitable business unit, Ancom Crop Care Sdn Bhd (ACC), which makes agricultural chemicals. A key brief is to ensure ACC’s continued growth and expansion.

Ancom is the holding company of Main Market-listed Nylex, ACE Market-listed Ancom Logistics and non-listed ACC.

“Moving forward, Ancom as a group will continue to be driven by ACC. We have put in place austerity and cost-cutting measures to reduce corporate costs. With all these measures in place, we are very optimistic about our company’s future,” he tells The Edge in an interview.

Lee, 46, has been ACC’s managing director since July 2014 and CEO of Ancom since January 2018.

ACC is an integrated agrochemical player with the capability to produce its own active ingredients (AIs), sell technical-grade intermediates to other formulators, as well as formulate end-products using its own AIs and formula.

According to Lee, Ancom, through ACC, is the only manufacturer of agrochemical AIs in Southeast Asia. It operates two production plants — one in Shah Alam (fully utilised) and the other in Port Klang.

“Our factory expansion remains the core story going forward. Over the years, we had only four AIs in our portfolio. Now, we plan to produce four new AIs in the coming years. But, first, we need to expand our production plant in Port Klang to develop the new AI.”

The expansion, which requires a capital expenditure of about RM15 million, is an extension of its Port Klang plant. Once completed, the new factory space — measuring about 70,000 sq ft — will house the production lines of three new AIs.

“We’ve just finished a tendering process, and the construction contract has just been awarded. The plant was supposed to be completed by the third quarter of this year, but it was delayed because of the Covid-19 pandemic. So, now, we are targeting the first or second quarter of next year. Hopefully, the contractor can start work in August or September this year,” says Lee.

Plenty of opportunities in active ingredients

Currently, ACC is selling its unique products to more than 40 countries, including the US, Mexico, Jamaica, Honduras, Cuba, South Africa, Kenya, Nigeria and Japan. It also sells to selected Asean countries through its global distribution networks.

For the financial year ended May 31, 2019 (FY2019), ACC generated revenue of more than RM300 million, of which 75% was contributed by the AIs. Its profit before tax in FY2019 was about RM47 million.

Typically, ACC needs about two to 2½ years to fully commercialise a new AI, Lee says, but considering that some of the processes, such as product registration in the respective countries, can be done concurrently, he expects ACC’s revenue to grow progressively.

“We want to double our AI portfolio. Ideally, with eight AIs, we will be a fairly big player in the industry. If everything goes well, we should be able to penetrate all the countries within 24 months of the completion of our plant,” he says confidently.

The first of the new four AIs is expected to be fully commercialised by year-end or early next year, as the company is still fine-tuning the process.

Lee explains that, in the past, most chemical firms were not keen to develop new AIs because the process is complicated and the technological requirements are very high.

“You need to have competent engineers, a lot of experts, intermediary input and chemical support. China is the biggest chemical producer in the world. It is very difficult for any Asian player to compete with China because you don’t have economies of scale,” he explains.

Over the last three to four years, however, many Ancom’s customers had been facing difficulty sourcing from China, owing to inconsistent supply and reduced production reliability.

Lee says that since Chinese President Xi Jinping came into power, China has introduced new environmental policies to tackle industrial pollution. As a result, many subsectors are facing supply chain disruptions and seeking alternative AI suppliers from outside China.

“A lot of our international clients have been struggling with the situation. Driven and motivated by such a trend, we decided to develop new AI to cater for their demand, as our customers no longer want to depend solely on China for supply. They want to have a diversified supplier base and reduce their reliance on China,” he says.

Lee points out that ACC is one of only two MSMA producers, seven Diuron producers and five intermediate industrial acid producers in the world. It commands a global market share of about 50% for MSMA, 10% for Diuron and 45% for intermediate industrial acids. Moreover, ACC is the only chemical firm in the world producing Monex, its proprietary product.

ACC’s products are especially suitable for sugarcane, cotton and oil palm plantations, and timber preservatives. The local market contributes about a third of its revenue, with most of it derived from the palm oil sector.

Outside Malaysia, Brazil — the biggest sugarcane producer in the world — is the largest revenue contributor, accounting for more than 10%.

The total hectarage of the sugarcane industry is 25 million to 26 million hectares spread over 90 countries, of which 10 million is in Brazil.

Lee highlights that about 30 AIs are used in the sugarcane industry. Some will kill broad-leaf, others stubborn weeds, and yet others deal with one-off killing.

“You need different chemical products to serve different purposes. It is not one-size-fits-all. We are now offering more solutions to the sugarcane industry. We are enhancing our product portfolio so it will not cannibalise our own products,” he says.

Apart from these products, Lee says ACC is looking to penetrate the area of big-acre crops, particularly soya bean.

“Soya is a huge market. We have never penetrated this market before. One of our new AIs would enable us to go into this area,” he says.