KUALA LUMPUR: Ancom Nylex Bhd is poised for an earnings recovery as growing demand for its herbicide active ingredient in Brazil's soybean market offers significant room for expansion, Hong Leong Investment Bank Bhd (HLIB) said.
The firm said every additional one million litres of sales potentially contributed RM4.5 million to RM5 million in net profit.
HLIB said monosodium methyl arsonate (MSMA) market penetration in Brazil currently stands at below one per cent, with management targeting a market share of one to two per cent, equivalent to annual sales of one million to two million litres.
"Elevated Brent prices should support industrial chemicals margins through higher average selling prices.
"Despite near-term headwinds from elevated freight costs and potential El Niño disruptions, we expect stronger MSMA sales volumes to underpin earnings recovery," HLIB said in a note.
HLIB said MSMA orders from Brazil's soybean market are gaining momentum following label approval in March 2026, with distributors commencing sales across key regions, including Mato Grosso do Sul, Mato Grosso and Goiás.
Shipments are expected to more than double to about 360,000 litres in October and November from approximately 160,000 litres in September, before moderating to around 260,000 litres in December.
However, HLIB cautioned that a potential El Niño extending towards the end of 2026 could disrupt rainfall patterns across key agricultural markets, with prolonged droughts or excessive rainfall potentially affecting planting activities and herbicide application.
While adverse weather could increase demand for crop protection products, it could also weigh on demand in affected markets.
"Nevertheless, we believe its diversified geographical exposure should help mitigate these risks. MSMA demand from the Brazil soybean market should remain healthy, while Malaysia and Australia could see softer demand with drier weather conditions," the firm said.
HLIB maintained its earnings forecasts and "buy" recommendation on Ancom Nylex, with an unchanged target price of RM1.27, based on 15 times its financial year ending May 2027 earnings per share.
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