FOLLOWING a remarkable series of business transformation between 2020 and 2021, MAG Holdings Bhd (formerly Xing He Holdings Bhd) has emerged one of the top three shrimp aquaculture players in Malaysia.
Boasting three shrimp farms and a processing plant situated in Tawau, MAG operates a seamlessly integrated shrimp business that spans the entire production process with a breeding capacity of 5,500 metric tonne (MT) and 6,000 MT of processing capacity annually.
Focusing primarily on the cultivation of the highly sought-after Vannamei shrimp species, 90% of the group sales is derived from the South Korea and China markets.
Therefore, it is understandable how the emergence of MAG’s new fourth farm which is situated just a short 15-minute drive from its existing pond in Tawau’s Kampung Wakub has made Hong Leong Investment Bank (HLIB) Research excited over prospects of the ACE Market company.
This latest addition to MAG’s operations includes 99 cultivation ponds and a processing plant which are able to boost the group’s breeding and processing capacity to 7,000 MT and 12,000 MT per annum respectively.
“During a recent visit to the new farm, it was observed that all the cultivation ponds had already been constructed and were actively farming Vannamei shrimps which are approximately one month old,” revealed HLIB Research’s analyst Sam Jun Kit in a stock watch.
“While the processing plant is still under construction, it is scheduled to commence operations by August. Encouragingly, a remarkable 80% of the breeding capacity has already been reserved by China’s largest hotpot restaurant chain.”
With 30% of MAG’s sales originating from China, the research house expects the group to be in a favourable position to capitalise on the increasing demand for seafood in this market.
“Driven by factors like population growth, rising income level, urbanisation and changes in lifestyle, China’s seafood consumption is on the rise with the country’s seafood consumption per capita registering a steady 2005-2020 compound annual growth rate (CAGR) of 2.5%.”
Against such prospects, HLIB Research expects MAG’s FY2023F/FY2024F/FY2025F core net profit to increase by 151%/31%/22% which implies a strong FY2022F-FY2025F CAGR of 27%.
“This growth is expected to be driven by the commercialisation of its fourth farm and burgeoning sales from RTE (ready-to-eat) and RTC (ready-to-cook) products,” projected the research house.
HLIB Research further indicated a fair value (FV) of 27 sen for MAG based on a target price-to-earnings ratio (PE) of 14.5 times mid-FY2024F earnings per share (EPS) of 1.85 sen in line with global aquaculture players’ average forward P/E.
“We reckon this PE multiple is fair given MAG’s higher margin and stronger CAGR in earnings as opposed to the peers,” suggested the research house. “This FV also translates into a 0.8 times FY2024 price-to-book value (P/B) which is significantly lower than peers’ average of 2.3 times.”
At the close of today’s trading, MAG was down 1.5% or 6.67% to 21 sen with 20.03 million shares traded, thus valuing the company at RM333 mil. – June 12, 2023
