by SHAFIQQUL ALIFF / pic by TMR FILE

MAG Holdings Bhd continues to look for further merger and acquisition (M&A) possibilities following the completion of its purchase of North Cube Sdn Bhd which has positioned MAG as one of the top three companies in the Malaysian aquaculture industry.

The acquisition of North Cube comes with a profit guarantee of not less than RM18 million in aggregate on a consolidated basis for the 18-month financial period ending June 30, 2022, the company said in a statement on Monday.

The group is looking to increase its shrimp breeding capacity to 20,000 tonnes per year in the next five years, by acquiring more breeding farms in Sabah.

MAG’s executive chairman Ng Min Lin (picture) said the breeding capacity in entire Malaysia is around 40,000 tonnes per year and MAG would have a market share of 35% upon achieving the capacity as stated.

He said the Covid-19 pandemic has created a vacuum of supply for prawns due to the disruptions of supply from producers in Indonesia, India, Ecuador and South America.

Producers in these countries have been facing supply chain and logistic interruption while issues in the ports meant it is harder to fulfil export deals.

“As a result, we have been getting overwhelming enquiries to export more prawns and this situation is similar to domestic producers.

They have been suffering since the pandemic, which presents us with bargaining power for acquisitions. Consolidation is happening, and we intend to capture this market and grow our market share,” Ng added.

Going forward, the local marine shrimp production aquaculture market is projected to expand at a compound annual growth rate of 11.9%, from RM1.13 billion in 2020 to RM1.99 billion in 2025.

MAG has a breeding capacity of 4,000 tonnes of vannamei (white leg shrimp or king prawn) per year with its 235 prawn cultivation ponds.

It accounts for 24.8% of Malaysia’s aquaculture production volume and 41.3% of MAG production value in 2019.

Ng expects the export market will continue to be the group’s major driver, riding on the strong US dollar and bridging the supply gap to South Korea, Australia, China and other countries.

He said the combined strength of 235 prawn cultivation ponds and a processing plant with a capacity of 6,000 tonnes per year allows MAG to harvest both North Cube and its existing farms into finished products.

“This creates economies of scale and synergy for the enlarged MAG Group and 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, deveined and cooked prawns.

“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,” Ng stated in the release.

Ng believes aquaculture players would need economies of scale to survive in this unprecedented situation, while the business is under the essential service category, the 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,” he said.