Ancom continues expansion of agrochemical and industrial-chemical outfits amid recovering markets

Date:12-15-2020

Ancom Berhad Group CEO Lee Cheun Wei is bullish about the company's expansion goals in the next two to three years. — Picture by Choo Choy May

Ancom Berhad intends to expand its profitable agriculture and industrial chemical businesses during a period where most global companies are just hoping to ride out the devastating effects of the pandemic.

With its wholly-owned subsidiary Ancom Crop Care Sdn Bhd (ACC) already perched as South-east Asia’s sole current producer of agrochemical Active Ingredients (AI), a new 70,000 square-foot factory in Port Klang — to complement its existing Shah Alam line — is set to be completed by June 2021.

Ancom Berhad Group CEO Lee Cheun Wei, in an interview with Malay Mail, outlined the company’s expansion goals over the next 24 to 36 months; aside from beefing up its agrochemical arm, it also aims to leverage on the rebounding prices in industrial chemicals such as methanol and ethanol through its listed company Nylex Bhd.

Lee also spoke about expansions and developments they are looking forward to through possible mergers and acquisitions (M&A) under the stewardship of new non-executive director Wong Yew Mun, who brings with him more than a decade's wealth of experience in private equity and investment expertise.

New factory in Port Klang

“Last year was not so good for agrochemicals but this year there seems to be a recovery in the second half of the calendar year where we received good response from the US and Latin American agricultural customers,” Lee said.

Ancom’s agrochemical outfit ACC — where Lee is also managing director — is moving towards doubling its AI portfolio to produce a total of eight AIs for the market once its new production line in Klang gets into full swing.

Construction work for Ancom Crop Care's new factory in Port Klang is in full swing and expected to be complete by next June. — Picture courtesy of Ancom Berhad

He said the 70,000 square-foot space would be divided into three separate production lines to allow simultaneous production of their new AIs.

ACC is an integrated agrochemical company that sells technical-grade intermediates to other formulators while also formulating and producing end-user products using its own AI and formula.

Lee explains that these AIs are also used in the production of herbicides and pesticides, with their main clients coming from both North and South America.

He said a third of ACC’s clientele comes from the Americas, a third are local customers, and the rest are spread across more tha 40 countries.

According to reports, ACC generated a net profit of RM35 million in the financial year ended May 31, 2019.

Once the new AIs are added to their portfolio and with the new factories running at full steam, Lee is optimistic of possibly doubling ACC’s RM300 million revenue over the next three years.

“Typically upon completion of the factory and the production line, it will take maybe 24 to 36 months for it to gradually increase to operate at full swing.

“So that's the reason why we say with the three or four new AIs, in 36 months, theoretically we should be looking at doubling the revenue,” he said.

Lee explained how the company’s four new AIs are currently at different stages of approval from various Pesticide Boards with some in the final stages of lab testing, adding how the entire approval process with the various approval boards can take anywhere between nine to 24 months.

He explained how their latest AI herbicide closest to the manufacturing stage is aimed for use on sugarcane and pineapple crops as well as for other non-food crop usages such as rail tracks and construction sites.

Expanding regionally through M&As

Having already established itself as a major agrochemical player, Lee said ACC with the appointment of new director Wong has set their sights on potential upstream and downstream merger and acquisition opportunities inspired by the new director’s expertise.

“With the appointment of the new director, and with the network and experience he has, I think he can help us to reach a lot of possible exploration of new potential targets for us to continue our growth in the agrochemical sector,” Lee said.

As for the potential entities being looked at to initiate a possible M&A, Lee stopped short of naming any but hinted at the possibility of acquiring companies that would improve the downstream distribution of its products.

“Maybe in South-east Asia, if we identify a better distribution, let's say in Myanmar or Vietnam if it's subject to high growth and if the company enjoys a high growth, that is something that we can consider building; the downstream distribution to help to distribute our product,” he said.

As for upstream M&As, Lee said it would most likely involve entities producing chemical intermediaries that could beef up its production capacity.

“Vertically upward, we may be looking at opportunities to participate in intermediary product manufacturing to help us strengthen our supply source,” he said.

However, he did affirm ACC’s M&A exercises would for the foreseeable future involve those from the same agrochemical sector before branching out.

Wong, who joined ACC’s board of directors in August, then expressed his optimism at tapping into the company’s full potential to solidify itself as a regional agrochemical player through strategic and profitable M&A exercises.

“The company under the leadership of Lee has done very well organically in growing its market share in the global pesticides market over the last few years.

“What I can contribute is by bringing my vast experience in private equity to help ACC accelerate its growth potential internationally via M&As in the downstream or upstream that can add long term and strategic value to the business,” Wong told Malay Mail.

Wong explained how the global pesticides market was reported to be worth around US$84 billion (RM341 billion) in 2019, and is expected to grow by at least 11 per cent in compound annual growth rate over the next four years.

This he said is driven by a growing global population and declining arable land size, fuelling the need for better quality yield each harvest period which can be achieved through the use of agrochemicals.

“As such, there is huge potential for ACC to increase its market share via M&As given the fragmented pesticides markets in the Asia Pacific, leveraging on ACC's strong fundamental and distinctive AI synthesising capabilities,” Wong added.

Wong brings with him over 13 years of private equity experience, where he was involved in several successful transactions amounting to a total aggregate value of approximately US$1 billion (RM4 billion).

Among his successful deals is the privatisation of three listed companies (King's Safetywear, Eng Kong Holdings, Adampak Ltd) from the Singapore Stock Exchange.

Moving ahead with industrial chemicals

Lee pointed out how the industrial chemicals trade sector is showing encouraging signs of improvement, and how Ancom plans to leverage and cash-in on the bullish market with their outfit Nylex.

He said Nylex as producers and traders of industrial chemicals ranging from solvents to sealants, experienced a significant dip in trade prices over the last two years, but noted how rates are beginning to climb especially over the last six months.

“For example, methanol is one of our (Nylex) key trading products, and it is now trading at US$290 (RM1,173) FOB (free-on-board) per-metric-ton, whereas six months ago it was trading at about US$200(RM809), so there seems to be a recovery. To have a full recovery, we need prices and also volume; the prices have come back, but as for the volume, we are seeing a little bit of recovery but not to the original before pandemic period (prices),” he explained.

Lee said Nylex is mulling an expansion of its ethanol plant in Chuping, Perlis, a process that could potentially take up to two years to complete.

He said the current plant can produce up to six million litres of industrial and food-grade ethanol per year at full capacity, with expansion plans potentially boosting the figure up to 10 million litres per annum.

“We are looking to further increase the production of ethanol because the country is in need during this pandemic period. We are producing six million litres and we are still importing, so I think an additional ethanol supply would be good for the factory so that we don't have to be reliant on the imports,” he noted.

Lee said that despite them having already obtained approval for the expansion in Perlis, the company is still within the final stages of discussions before giving the project the green light.