Investment Highlights

• Maintain BUY on Ancom Nylex (Ancom) with a higher fair value of RM1.46/share (from RM1.44/share previously) pegged to an unchanged 12x FY25F PE - its 3-year historical mean.

• Ancom announced the acquisition of a 70% equity stake in Colorex, a specialty chemicals supplier for Malaysia's automotive sector. The salient points of the deal are:
  • Consideration sum of RM14m for the stake values Colorex at RM20m,
  • All cash offer,
  • Colorex management provides a profit guarantee of RM2.5mil for the next two years, which effectively values this business at 1-year forward PE of 8x, and
  • Expected timeline of six months to complete the transaction.

• This is a sweet deal, in our view. The acquisition is value accretive immediately given Colorex's effective forward acquisitive PE of 8x, whereas Ancom is currently trading at ~11x. Furthermore, it is very rare in this day and age for the provision of a profit guarantee.

• The acquisition value represents 2.7% of Ancom's latest shareholders' equity. It is a small acquisition relative to Ancom's balance sheet size, and we think it should obtain approval without any problems.

• We tweak our earnings and fair value to account for this profit contribution from Colorex. The impact is small, at only +2 sen to our fair value.

• The management has always said that Ancom is open to acquisition opportunities if the price is attractive. Therefore, we should not be surprised by this activity. We do not rule out the possibility of further acquisitions in the future.

• The stock trades at a bargain 8.4x FY25F P/E and EV/EBITDA of 4x given that Ancom is forecasted to deliver robust forward 3-year earnings CAGR of 22% and high-teens ROEs.

Source: AmInvest Research - 20 Sep 2024