This article first appeared in The Edge Malaysia Weekly on February 28, 2022 - March 6, 2022

AQUACULTURE group MAG Holdings Bhd plans to spend RM100 million this year expanding its prawn farm business and to double its prawn production capacity to 8,000 tonnes per year, from the current 4,000 tonnes or so, to cater for increasing demand, especially in South Korea.

According to group executive chairman Stephen Ng, demand for vannamei (white leg shrimp or king prawn) is so strong that MAG does not have extra produce for its prospective customers.

“This month, we will commence operations at our third site, which will increase our production to 5,500 tonnes per year. It was a RM15 million investment. Then, we will expand with our fourth site, which is on a 125-acre land that will house 96 ponds and a new processing plant.

“The facilities will be able to process 6,000 tonnes of prawns a year, increasing our processing capacity to up to 12,000 tonnes per year. The total investment is about RM120 million,” says Ng in an exclusive interview with The Edge.

Aquaculture companies that do the processing themselves usually ensure that their processing plants have some reserve capacity in case production exceeds their projections.

Ng says the additional capacity to produce and process prawns at the fourth site — located in Tawau, Sabah, like the other three sites — will allow MAG to open accounts with new customers and to diversify its customer base. He has been on the board of directors of MAG since 2011 and was made executive chairman in December 2019, as well as chairman of the long-term incentive plan committee.

Currently, up to 90% of MAG’s produce is exported, with the bulk of it to South Korea as the company has a strong relationship with the largest prawn brand in that country, which has been sourcing its prawns from MAG.

MAG was previously known as XingHe Holdings Bhd, which was perceived on the local bourse as a so-called “red chip” stock as it used to be involved in the production, blending and marketing of peanut oil and other edible vegetable oils as well as a raw peanut business in China’s Henan province.

However, in December 2019, the group ventured into prawn farming after it acquired the assets of Pegagau Aquaculture Sdn Bhd, or the Wakuba farm, for RM100 million. The assets — which include 102 prawn cultivation ponds — are located in Kampung Wakuba in Tawau, Sabah.

The group then acquired another prawn aquaculture farm in July 2021 by buying a 100% stake in North Cube Sdn Bhd, an aquaculture farming group that owned 133 cultivation ponds and a prawn processing plant.

The North Cube farm and its processing plant are located in the vicinity of the Wakuba farm, which provides the group with savings in terms of logistical costs.

The venture into aquaculture has proved to be profitable for MAG. In the 18 months ended June 30, 2021 (18MFY2021), MAG’s net profit amounted to RM9.22 million — a significant achievement given that most economies were under lockdown or some form of movement restrictions because of the Covid-19 pandemic.

In the financial year ended Dec 31, 2019 (FY2019), when MAG was still called XingHe, the company posted a net loss of RM101.4 million as it recognised RM75.86 million in losses on the disposal of a subsidiary and another RM21.4 million on the dilution of equity interest in an associate company.

In FY2019, XingHe deconsolidated Henan XingHe Oil and Fat Company Ltd from the group due to the disposal of its 41.5% stake in the company for RMB155 million (RM91.5 million).

In just two years, MAG has become one of the largest prawn aquaculture farmers in Malaysia. According to Ng, Thailand-based Charoen Pokphand Group is the largest prawn farmer in Malaysia, but its productivity has recently slipped. “Excluding CP Group, I think we are the largest prawn farmer and producer in the country,” he says.

Malaysia produces around 45,000 tonnes of white leg prawns a year, which is a rather small amount compared with its neighbours Vietnam, Thailand, Indonesia and India.

According to data provided by Infofish — an intergovernmental organisation that provides marketing information and technical advisory services to the fishery industry in Asia-Pacific — it is estimated that China produced about 500,000 tonnes of farmed marine shrimp in 2020.

It was outpaced by India, which is one of the largest producers of farmed marine shrimp in the world, with an output of an estimated 640,000 tonnes in 2020, according to Infofish. Other major producers in this region include Vietnam (465,000 tonnes), Indonesia and Thailand (285,000 tonnes each).

Globally, Ecuador is the largest producer of farmed marine shrimp, having produced an estimated 705,000 tonnes in 2020, according to Infofish.

MAG has the ambition to continue growing its prawn aquaculture business. Ng says its target is to produce 20,000 tonnes per year and to become the largest prawn aquaculture group in the country within five years.

“Once we reach that level, I think we will definitely be the largest and will be able to command better bargaining power in terms of dealing with our suppliers and customers,” says Ng, who believes there is a lot of room for growth in the shrimp or prawn aquaculture industry, especially in Sabah and Sarawak as the states are surrounded by the sea.

Ramping up production to 80,000 tonnes should “not be an issue” for Malaysia, he says.

As at Dec 31, 2021, MAG was in a net cash position with cash and bank balances of RM161.11 million, while its short-term and long-term borrowings stood at RM113.1 million. During the six-month period ended Dec 31, 2021, MAG made RM12.5 million in net profits, which was already bigger than the net profits the group recorded in 18MFY2021.

MAG’s shares were trading at 21.5 sen apiece last Thursday, valuing the group at RM307 million. On a trailing 12-month basis, the counter was trading at a price-earnings ratio of 35.29 times. The stock has not been able to breach the 22 sen level since Oct 28 last year.

MAG’s shares were trading between 23.5 sen on March 23, 2021, and 14.5 sen on Aug 23, 2021.

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