Every industry has its unique set of risks and rewards, and aquaculture is no different. However, a strategic approach towards risk management can not only mitigate the inherent perils but also unlock substantial profitability. A standout example of this is MAG Holdings Berhad, formerly known as Xinghe Holdings Berhad. The company has embarked on a new journey, shifting its focus to the upstream business of cultivating Vannamei shrimps, complemented by its in-house processing capabilities.

MAG's risk management approach shines in its use of smart farming systems across its three existing farms. These systems have boosted the survival rate of their shrimps. Research Gate reports that the survival rate for Vannamei shrimps typically falls between 63.5% and 87%, contingent on breeding density. Remarkably, MAG's historical survival rate is consistently above average, ranging from 70% to 80%.

This is particularly impressive given that MAG is one of Malaysia's largest integrated Vannamei prawn players, with an annual breeding and processing capacity of 5.5k MT and 6k MT respectively. The high-density breeding conditions only underscore MAG's successful risk mitigation.

Figure 1: Survival rate of white leg shrimp and sensitivity to density changes

Another metric where MAG excels is the Feed Conversion Ratio (FCR). With an FCR between 1.5 to 1.7, MAG demonstrates high efficiency. For reference, the FCR measures the relationship between feed intake and weight gained by an animal - the lower the FCR, the higher the efficiency, according to TABLE Debates.

Figure 2: Financial Performance of MAG Holdings Berhad

MAG's superior risk management strategy has not just mitigated risk but also led to significant financial growth, especially over the last three quarters. The company has effectively turned risks into additional profit margins. It is worth highlighting that along with strong financial figures, MAG has generated a robust cash flow, with RM27.82 million net cash derived from operating activities.

While no dividends have been distributed yet, the generated cash flow is planned to be reinvested into their fourth farm, which is conveniently located just 15 minutes away from their existing facilities.

The upcoming fourth farm is projected to increase MAG’s annual breeding and processing capacity to 7k MT and 12k MT respectively. As per an analyst report*, the new cultivation ponds have been constructed and are now farming Vannamei shrimps.

*This is also the first time ever MAG had institutional coverage since the commencement of new business venture.

Currently, MAG's primary markets are China and South Korea, contributing 90% of the company’s sales. The looming prospect of deglobalization is making food security a critical issue for all nations, and MAG is ready to meet the demand. To put it in the words of MAG's website, "Whatever we can produce, they want it all."

The company also plans to cater to the increasing demand for Ready-to-Eat (RTE) and Ready-to-Cook (RTC) shrimp products from these two countries. Indeed, 80% of the new breeding capacity has already been reserved by China's largest hotpot restaurant chain, emphasizing MAG's role as a key supplier.

Figure 3: Chart Movement of MAG over past 52-weeks

In the realm of stock performance, MAG's price has remained relatively flat over recent weeks but is finally showing signs of momentum, both in price movement and volume. Recent research reports from AmInvest have set a target price of RM0.240 and RM0.250 respectively, indicating a promising outlook for the company.

In sum, MAG Holdings Berhad offers a masterclass in converting risks into profitability and is well-positioned for growth and continued success in the aquaculture industry.