Oceanus Group has applied for exit from the SGX watchlist on 13th April 2021 after finally swinging back into the black in FY2020. The revenue actually grew within 1 year from S$9.6Mil in FY2019 to S$91.7Mil. Revenue is expected to grow exponentially further due to its recent investments into prawns and shrimp farming in Singapore and also Hainan, China. The Singapore farm is expected to produce 150 kilograms of prawns daily from June'21 onwards and this will grow to 1,000 kilogram of fresh prawns being produced daily by 3rd quarter of FY2022. For Hainan, Oceanus will produce 200 tonnes of shrimps initially and by next year, this is expected to grow to 1,000 tonnes. Share price of Oceanus rose to an all time high of 7.6 cents per share on 22 Feb 2021. Currently it is trading at around 3.8- 4.0 cents per share.
1. The Oceanus Group troubled history and death of abalones
In 2013 under its old management, a substantial number of its abalone in China farm suddenly experienced unnatural deaths. This happened within a very short time span after the 2013 AGM whereby its Executive Director, Mr Wu Yong Shou was booted out of the Board of Directors. He lost the re-election and his executive director position- he was overwhelmingly defeated by a resounding 95.51% majority of the shareholders. This episode eventually led to the suspension of trading in its shares and a filing by its banker to wind up the Group.
After much restructuring amidst the drama, Oceanus Group finally managed to turn profitable and seems to be on its way out of SGX watchlist and to retain its listing on SGX.
2. Oceanus new strategy under CEO Peter Koh- 4 pillar of growth strategic vision
(i) Food Production
Since inception, aquaculture has been a cornerstone pillar of Oceanus’ business.
From 2021 onwards, Oceanus have diversified beyond seafood. The group is also expanding its food products to include vegetables and meat. Oceanus remain committed to continue delivering the gold standard in fresh and frozen food produce to all their partners.
Oceanus’ strategies to leverage sustainable practices and adoption of cutting-edge aquaculture technologies have positioned us at the forefront of addressing global food security issues.
(ii) Distribution
Oceanus Group oversees the distribution of products from the first to final mile to guarantee punctuality in delivery and impeccable quality. Oceanus Group leverages upon its existing corporate presence and trading network globally to strengthen its position across the value chain–from raw materials to consumer goods.
(iii) Services
Oceanus Group expands beyond product distribution to offer services ranging from consultation, business strategies, media solutions to corporate branding. Oceanus Group’s in-house capabilities in aquaculture consulting, asset management, marketing and branding are also offered to third parties. By serving as profit centres wherever possible, these services boost the overall productivity and profitability of Oceanus Group.
(iv) Innovation
Oceanus Group stays ahead of the curve by continually pursuing cutting-edge aquaculture research & development (R&D) alongside their industry partners and institutions. For example, Oceanus has set up the Oceanus Oceanic Institute in Zhangpu China and Oceanus Innovation Centre @ Temasek Polytechnic Singapore. The group also have ongoing research collaboration with Temasek Polytechnic and Republic Polytechnic on juvenile abalone growth.
3. Financial Evaluation and Future Expectation
As depicted in the attached P&L screenshot, revenue grew aggressively by +S$82Mil (+855%) from FY2019 to FY2020. This is mainly due to expansion of the Group's distribution segment (Fast Moving Consumer Goods) which contributed a solid S$84.7Mil in FY2020 relative to S$6.5Mil in FY2019.
In addition, the business strategy of increasing contract farming business model to external aquaculture farmers allows Oceanus to maintain a fixed monthly income and forgo direct operating costs associated with full scale juvenile farming. This has the additional advantage of allowing Oceanus to hedge against the risks of mortality and volatile abalone juveniles prices.
Operating expenses also dropped by +S$1.6Mil due to successful implementation of cost optimizing strategies which means that the savings from this point onwards is not one-off and actually recurring in nature.
This gives rise to an ultra impressive Operating Profit of +S$7.5Mil in FY2020 relative to FY2019 loss of <S$1.5Mil>- this is an incredulous growth of +S$9Mil (+599%).
Based on current market price of 3.8 cents to its EPS of 0.04cents, this is a PE of 95 times, I think that it will take 3-4 years at least for it to duplicate and expand on its current business model to reach sufficient revenue size and profitability. Basically, profit must increase by 5 times to that of the current FY2020 operating profit level. Not an easy feat in my personal opinion despite turning from loss to profit.
4. Does Oceanus Group senior management really think they can expand the business exponentially using its 4 pillar strategy over the next few years?
Well, the good news here is that on 15th March 2021, the CEO of Oceanus, Peter Koh, actually went into the market to purchase 12.5Mil of shares at an average price of 4.07 cents- he must be confident in growing the company by at least 5 times over in the next few years and I like his optimism.
Dr Yaacob Ibrahim, former Minister for Communications and Information has also joined Oceanus Group as an independent director in Sep 2020. This bodes well for Oceanus Group to have director of such super star status willing to come on board its Board of Directors.
5. Parting Thoughts
It is hard to do a valuation of Oceanus Group as it is in the growth stage of its new strategic execution path. If based on FY2020 earnings of 0.04 cent per share, it is 95 times overvalued based on recent market pricing. But of course, for such "growth" company, the challenge lies in the forecast of its future growth in revenue and profits given the recent investments into new farms and also upcoming growth in its 2nd and 3rd pillar business segments. The half year results which will be announced in July'21 will give us some idea of the strength of its business development momentum. Nevertheless, the best gauge will still be at year end whereby its new investments have commenced production for better visibility of Oceanus future star potential.
(P.S: Despite the seemingly excessive high valuation at 3.8 to 4.0 cents per share, I have nibbled away some of its share as I like the growth story marketed by its CEO. COVID-19 had exposed weaknesses in the resiliency of the food supply chain in many countries- I believe that Oceanus has embarked on a right path in its current focus of its 4 pillar strategy approach as many countries would be keen to invest in its own locally produced food-tech instead of relying on imports from other countries).
No comments:
Post a Comment