China’s Xinghe expands in Malaysia with RM100m purchase of Sabah aquaculture farm

By LYDIA NATHAN

China-based Xinghe Holdings Bhd is expected to expand into the Malaysian market via its wholly owned subsidiary XW Aquaculture Sdn Bhd’s proposed acquisition of an aquaculture business in Kampung Wakuba, Sabah, for RM100 million.

The scheme would be realised following a sale and purchase agreement signed by XW Aquaculture with Pegagau Aquaculture Sdn Bhd on Dec 31, 2018.

Pegagau, which was incorporated on Sept 8, 2000, is involved in the cultivation and marketing of aquaculture products.

The acquisition includes a 97.9ha land priced at RM12.5 million, while the entire project entails the development of ponds, plant as well as procurement of machinery, equipment, motor vehicles, livestock and consumables for the sum of RM87.5 million.

The total amount also covers livestock and consumables which include prawns under cultivation, prawn feed, chemicals, packing materials, fuel, lubricants and other consumables.

Xinghe said the purchase will be funded via internally generated funds as well as  borrowing and debt to be raised from fundraising exercises.

The deal is expected to be completed within six months from the agreement.

Xinghe said the Malaysian economy is expected to remain resilient in the near term, while the services sector is expected to remain the largest contributor to it.

“Moving forward, the local marine shrimp aquaculture market is forecast to expand at a steady pace throughout the period of 2018 to 2022, projected to grow from RM1.28 billion in 2017 to RM2.01 billion in 2022,” the group said.

In an exchange filing, Xinghe said the proposed acquisition of the aquaculture business in Sabah will enable the group to expand its business and strengthen its financial performance by having a new Malaysian-based resilient business to supplement its existing edible oil operations in the People’s Republic of China (PRC).

Xinghe also stated that it had, however, been negatively impacted by the PRC campaign against environmental pollution in Neihuang County, Henan Province, where the production plant is situated.

“Due to directives by the local authorities to industrial plants including Xinghe to restrict production, so as to improve air quality, Xinghe’s plant had been unable to run its production for a reasonable amount of time to fulfil sales orders,” the group said.

This curb resulted in no new orders for the group’s products and saw its revenue on a downtrend since August 2016.

Xinghe’s profit before tax declined to RM8.9 million for the financial year ended Dec 31, 2017 (FY17), from RM125.1 million in FY15.

For the current financial year to Sept 30, 2018, the group has incurred losses for two out of three financial quarters announced to date amounting to RM14.5 million.

Xinghe added that the anti-pollution measures are not expected to ease in the near term as PRC seeks to reverse decades of environmental damage.