Posted by kiaralim19 > 2021-07-25 21:58 | Report Abuse

MAG Holdings Berhad (Ticker: 0095 MAG) Market Cap: 270.7 mil No of Shares: 1,388 mil Debt to Equity: 13.44% Net Cash: 108 mil NAV: RM0.72 Investment Highlight 1. Capacity Expansion Through M&A 2. Venturing into Downstream to Capture Higher Margin 3. Riding on the E-commerce 4. Streamlining Business by Disposing Lose Making Business Unit Company Background MAG Holdings Berhad (MAG) formerly known as XingHe Holdings Berhad was a company involved in the edible vegetable oil business in China. However, the Group have successfully diversified into the shrimp aquaculture business after a business diversification and renamed the company to MAG, the acronym for “Malaysian Aquaculture Group”, to better reflect its present principal business in aquaculture. MAG’s shrimp farms are located in Kampung Wakuba, Tawau Sabah. Kampung Wakuba is well known for its pristine waters, which is ideal for producing outstanding quality shrimps. MAG cultivate Vannamei shrimps in non-pesticidal cured marine ponds and exports them to countries such as Korea, China and Vietnam. With its facilities in Sabah, MAG is one of the largest Aquaculture producers in Malaysia. It is important to note that MAG’s partners collectively have more than 40 years of experience cultivating shrimps. In addition, the Group has stringent biosecurity compliance in place, the utmost priority in the food business. Investment Merits 1. 1 + 1 >2: Post acquisition of North Cube Sdn Bhd, “NCUBE” (completed on 2 July 2021), MAG has doubled its breeding capacity to 4,000mt/year, from 2,000mt/year. Total asset size increased to 235 cultivation ponds, from the previous 102 ponds. The acquisition also comes with a processing facility with a capacity of 6,000mt/year. NCUBE acquisition also comes with a profit guarantee of no less then RM18 mil for the 18-month financial period ending 30 June 2022. As both MAG and NCUBE Group are currently involved in the Aquaculture Business, the acquisition will enable both companies to leverage their combined strengths in the industry and create positive synergy. 2. Margin Expansion: We believe post-acquisition of NCUBE will help the Group to increase the utilization rate of its downstream processing plants. The shrimps processing plant will enable the Group to improve profitability and capture a wider market by selling better margins products such as “peeled & deveined” as well as “cooked” prawns. 3. Riding on the E-commerce: With the change of consumer behaviour amid COVID19 pandemic, which has accelerated the shift to e-commerce, the Group planned to ride on the rise of the online store by listing its products on various E-commerce channels to promote its product in the local market. With its strength in the upstream business, we expect the Group to be competitive in terms of pricing. 4. Unloading the Sandbag: Reference is made to the recent announcement of MAG on 30th June 2021, MAG will reduce its stake in the loss-making edible oil business (Henan XingHe Oil and Fat Company Limited, HXOF) from 40.77% to 19.86% with consideration of RM37.8 mil. The losses in HXOF had caused the Group to register financial losses since 2017. The Group recorded a loss after taxation of RM6.78 mil, RM25.54 mil and RM108.25 mil in financial years 2017, 2018 and 2019 respectively. The sale proceeds are intended to be used for investments in shrimps aquaculture and other seafood processing business and for OPEX and CAPEX of the Group’s existing shrimps aquaculture business such as on ponds improvement, staff costs and purchase of fries and feeds. Our View: Add We are positive to see MAG has finally turnaround its business by diversifying into Aquaculture business through a successful business diversification. We think the acquisition of NCUBE will bring synergy and value accretive to the Group; on the other hand. We note that M&A process can be time-consuming and can be problematic at times. Management has plans to increase its shrimp breeding capacity to 20,000 mt/ year and to command 35% market share in Malaysia by consolidating small players. The aquaculture business is scarce in Malaysia. Regional comparable companies are trading at the mean of 18x PE. We think MAG will be able to hit annual revenue of RM120 mil post-acquisition of NCUBE, and by assigning a net profit margin of 25%, we believe fair value of MAG post-acquisition should be around RM0.39. This is based on the existing breeding capacity without taking into consideration of the new farms and new capacity. Technical Share price had been remain stable at 20sen level since 2020 September and no see any selling pressure, as Mag can break recent high 21.5sen there is very high chance to break 23sen level. R1, R2, R3 0.21, 0.23, 0.265 S1, S2 0.19, 0.175