PETALING JAYA: Mag Holdings Bhd
’s near-term earnings outlook continues to be dragged by the persistent strength of the ringgit, increased freight costs, and slower-than-expected processing ramp-up, says Mercury Research.
As a result, the research house has cut its earnings forecast on MAG for financial year 2026 (FY26) and FY27 by 13% and 11% to RM27.1mil and RM33mil, respectively.
It said the downward revision reflects lower gross profit margin assumptions, a more conservative processing utilisation rate, and lower contract farming contribution.
Following a meeting with MAG’s management, Mercury Research noted that foreign-exchange challenges, as well as freight cost pressures due to Middle East supply chain disruptions, are weighing on margins.
“Approximately 60% of revenue is US dollar-denominated, whereby the strengthening ringgit reduces its value of export realisations while supply chain disruptions have driven freight costs higher,” it said.
The group has kept volume impact manageable thus far by raising the export average selling price by more than 10%.
However, Mercury Research said costs cannot be fully passed on to customers without risking losing out to competitors in Vietnam, Thailand and Indonesia, who experience comparatively weaker currency pressure.
This has led to partial cost absorption by MAG, according to the research house, which lowered its FY26 and FY27 gross profit margin assumptions to 20.5% and 22.0%. Nevertheless, the group is exploring bulk US dollar feed purchases to help hedge input costs and expects profit margins to remain at current levels or compress mildly should pressures persist.
Management said the cushioning of costs should come from productivity gains from its lower-density farming trial, potentially bringing higher survival rates, as well as shorter farming cycles and a lower feed conversion ratio.
Meanwhile, MAG’s processing utilisation rate sits at approximately 40% against its total installed capacity of 12,000 tonnes per year, compared to its own-farm output of 8,700 tonnes as at December 2025, which constitutes a farm utilisation rate of about 87%.
“The wide gap between the two reflects the structural shortfall of own-farm supply relative to processing capacity, and management has guided a longer-term target of 70% to 75% processing utilisation, contingent on securing sufficient third-party offtake,” Mercury Research said.
MAG’s contract farming segment, however, contributed under 10% of revenue for the 18-month financial period ended Dec 31, 2025 (18M25), and near-term growth remains constrained by the availability of new pond facilities.
In light of management guidance, the research house has reduced its contract farming contribution estimates to the top line from 12% to 9% for FY26.
Mercury Research has lowered its target price on MAG by 21% to 15.5 sen, based on an unchanged 9.5 times price-to-earnings ratio applied to FY27 earnings per share of 1.63 sen.
It downgraded its rating from “buy” to “hold”, noting that valuation remains demanding. It also said the group’s balance sheet remains healthy with cash of RM109.6m and net gearing of 0.37 times as at the end of Dec 31, 2025.
It remarked that MAG’s 18M25 headline net loss of RM183mil was entirely driven by a one-off non-cash provision of RM243.9mil on a loan to a former subsidiary, and excluding this, adjusted pre-tax profit was RM79mil, broadly in line with FY24.
