XingHe’s unit acquires prawn farm in Sabah to diversify income stream
KUALA LUMPUR: Xinghe Holdings Bhd’s wholly owned subsidiary, XW Aquaculture Sdn Bhd, is acquiring a 97.9 ha prawn farm, related facilities and assets in Tawau, Sabah from Pegagau Aquaculture Sdn Bhd for RM100 million cash.
In a filing to Bursa Malaysia today, the company said the acquisition 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 China.
“The group is hopeful that the acquisition together with the tuna and seafood processing plant (which is being set-up) will be earnings accretive and should enhance the value of the group in the long term,” it said.
Xinghe’s existing revenue is solely generated from its production, blending and marketing of peanut oil and other edible vegetable oil, all of which are based in China.
However, China’s campaign against environmental pollution in the smog-prone northern region started a few years ago had affected the group negatively as the group’s production plant is located in the region concerned.
“Due to directives by the local authorities in China to industrial plants including the group’s plant to restrict production so as to improve air quality, the group’s plant had been unable to run its production for a reasonable amount of time to fulfill sales orders.
“These production curbs have resulted in the group not being able to accept new orders for its products and consequently, the group’s revenue has been on a downtrend since August 2016,” it said.
Xinghe said the uncertainty has caused the group’s financial performance to deteriorate, with its profit before tax declining from RM125.1 million in the financial year ended December 31, 2015 to RM8.9 million for the last financial year ended December 31, 2017.
For the current financial year to September 30, 2018, the group has incurred losses for two out of three financial quarters announced to-date and as of September 30, 2018, the group’s loss for the year to-date amounted to RM14.5 million.
Xinghe said the earlier mentioned anti-pollution measures are not expected to ease off in the near term as China seeks to reverse decades of environmental damage.
“In the light of these uncontrollable factors, the group has taken steps to try to lessen the negative impacts that it faced in China by looking to add new revenue streams in Malaysia,” it said.
Source: NST