MAG Holdings Bhd (formerly XingHe Holdings Bhd) continues to scout for more merger and acquisition (M&A) opportunities after having completed its acquisition of North Cube Sdn Bhd (NCUBE) that cements the group’s position as one of the top three players in the Malaysian aquaculture industry.
Post-acquisition, MAG has a breeding capacity of 4,000 tonnes of vannamei (whiteleg shrimp or king prawn) per year with 235 prawn cultivation ponds.
The group is looking to increase its capacity to 20,000 tonnes per year over the next five years by acquiring more breeding farms in Sabah.
For context, the breeding capacity of entire Malaysia is around 40,000 tonnes per year. MAG would have a market share of 35% upon achieving the capacity as stated.
“This pandemic has created a vacuum of supply for prawns due to disruptions to supply chain caused by global lockdowns,” commented MAG’s executive chairman Ng Min Lin.
“For example, producers in Indonesia, India, Ecuador and South America are facing supply chain and logistic interruption, while issues in the ports meant that it is harder to fulfil export deals.”
As a result, Ng said MAG has been getting overwhelming enquiries to export more prawns.
“That many domestic producers are also suffering due to the pandemic has presented us with bargaining power for acquisitions,” he pointed out. “Consolidation is happening, and we intend to capture this market and grow our market share.”
According to Ng, aquaculture players need economies of scale to survive in this unprecedented situation. While the business is under the essential service category, supply chain players such as packaging are not deemed “essential services”.
“A big player like MAG can absorb a larger quantity of materials needed, while the smaller one will have no choice but to halt their production,” rationalised Ng.
Meanwhile, the acquisition of NCUBE comes with a profit guarantee of not less than RM18 mil in aggregate on a consolidated basis for an 18-month financial period ending 30 June 2022.
“We envision that the export market would continue to be the main driver for the group; we hope to ride on the strong US dollar and filling the vacuum of supply to South Korea, Australia and China, among others,” projected Ng.
The combined strength of 235 prawn cultivation ponds and a processing plant with a capacity of 6,000 tonnes per year allows the MAG group to harvest both NCUBE and its existing farms into finished products. This inadvertently creates economies of scale and synergy for the enlarged MAG group.
“By having this vertical integration in the supply chain, we are also looking into the value-added downstream ready-to-eat food such as ‘peeled and de-veined’ and ‘cooked’ prawns,” projected Ng.
“These products will give us higher margins as customers are willing to pay for the convenience. When the opportunity comes, we will invest in setting up new production lines for this venture.”
Malaysia’s marine shrimp aquaculture accounts for 24.8% of Malaysia’s aquaculture production volume and 41.3% of its production value in 2019.
Going forward, the local marine shrimp production aquaculture market is projected to expand at a compound annual growth rate (CAGR) of 11.9% from RM1.13 bil in 2020 to RM1.99 bil in 2025.
At the close of today’s mid-day’s trading, MAG was up 0.5 sen or 2.44% to 21 sen with 32.68 million shares traded, thus valuing the company at RM292 mil. – July 19, 2021