Qian Hu Corp Ltd - CGS-CIMB Research 2018-09-04: Advancing With Aquaculture

Qian Hu Corp Ltd - CGS-CIMB Research 2018-09-04: Advancing With Aquaculture QIAN HU CORPORATION LIMITED SGX:BCV

Qian Hu Corp Ltd - Advancing With Aquaculture

  • On 29 Aug 2018, we visited Qian Hu’s aquaculture farms on Hainan Island.
  • Qian Hu is an ornamental fish breeder and exporter. The group also manufactures and distributes a wide range of pet and aquarium accessories.
  • Qian Hu believes its venture into aquaculture could, in the next few years, grow into a bigger business than its existing businesses.
  • Qian Hu trades at a historical P/BV of 0.44x with a dividend yield of 1.0%. Historical net gearing is 0.11x.



Visit to Qian Hu’s aquaculture farm in Hainan Island

  • We visited Qian Hu’s aquaculture fish farms on Hainan Island on 29 Aug 2018.
  • Qian Hu has two farms totaling 10,000 square metres by land area on the Island. One farm rears and exports grouper fingerings while the other rears and exports shrimp. As the farms are inland, they are not subjected to the risks of fish farming that accompanies sea-based methods.
  • Qian Hu says its seafood is antibiotic free as the group uses its own proprietary herbal based medication and high quality fish feed.


Qian Hu Aquaculture (Hainan)


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  • The first farm we visited occupies a land area of 6,000 square metres and has 102 tanks. The land lease for this farm is 20 years and the farm was completed and opened on 18 Jun 2017. This farm's main business is the farming of grouper fingerlings and trading of various fish varieties. Currently, this farm is also trialing coral trout farming.


Tian Tian Fisheries (Hainan) Co Ltd

  • The second farm we visited occupies a land area of 4,000 square metres and has 104 tanks. This farm has a 2-year land lease. Qian Hu is exploring shrimp hatchery as well as lobster farming here. It is experimenting to determine the optimal land-based model for lobster growing.
  • Qian Hu believes there could be business opportunities in providing the needed expertise and consumables (to local farmers) if its model farm is successful and if local farmers convert from the current snail farming to lobster rearing.


Qian Hu sees potential in aquaculture

  • In its 2017 annual report, Executive Chairman and Managing Director Kenny Yap wrote that in the next few years, Qian Hu aims to build up its aquaculture business to be many times bigger than its existing businesses. 
  • Citing research from the World Bank, Qian Hu says it believes the production of edible fish on a global scale will continue to expand over the next decade, and that countries in Southeast Asia are slated to be the main producers.


Leading ornamental fish exporter

  • Qian Hu Corporation Ltd has been listed on the Singapore Exchange since 2000. It is an integrated ornamental fish service provider including the breeding of dragon fish to farming, importing, exporting and distributing of over 1,000 varieties and species of ornamental fish. It also manufactures and distributes pet and aquarium accessories.


Historical valuations

  • Qian Hu trades at an FY17 P/E of 69.0x and FY17 P/BV of 0.44x. 
  • Historical dividend yield is 1.0% while historical ROE was 0.64%. The group’s historical net gearing is 0.11x.



Company Profile

  • Qian Hu Corporation Ltd was incorporated in 1998 and has been listed on the Singapore Exchange since 2000. It first started off as a pig farming business in Singapore in 1985 by Mr Yap Tik Huay, the father of the group's Executive Chairman Kenny Yap, and brother Yap Hey Cha. They then went on to breed guppies and farm high-fin loaches.
  • Today, Qian Hu is an integrated ornamental fish service provider with business activities ranging from the breeding of dragon fish to farming, importing, exporting and distributing of over 1,000 varieties and species of ornamental fish from all over the world.
  • Headquartered in Sungei Tengah, Singapore, it also manufactures and distributes a wide range of pet and aquarium accessories. The group derives its revenue from three segments: ornamental fish, accessories and plastics.


Key Management

  • Mr Kenny Yap is one of the group’s founding members, and its Executive Chairman and Managing Director. Mr Alvin Yap and Mr Andy Yap are its two other founding members. As Deputy Managing Directors, they oversee the group’s aquarium and pet accessories operations, and ornamental fish and aquaculture operations, respectively.
  • Finance operations are handled by Lai Chin Yee, the group’s Finance Director.


What Has Changed?


Food for thought 

  • Leveraging 30 years of experience in proprietary fish feed and medication, in 2017 Qian Hu ventured into aquaculture, an industry that management believes holds significant growth prospects. 
  • Qian Hu started its pilot aquaculture farm in Wenchang, Hainan Province, China in early-2017. In Nov 2017, it set up another aquaculture farm in Hainan to commence the breeding and farming of shrimp. This farm will also export edible fish and seafood from Hainan to Southeast Asia, while importing other edible fish and seafood from the rest of the world into China within the next few years. Currently, the fish farms occupy a land area of 10,000 square metres.
  • Qian Hu chose Hainan Province because it is the hub of aquaculture in China today. Not only does it have a well-developed supporting industry in related products, there is also nascent market demand. As such, Qian Hu can effectively leverage the existing infrastructure and the established buy-sell platforms, logistics, and infrastructure in this province, according to management.

Leveraging its expertise in ornamental fish 

  • Qian Hu’s management believes its approach to aquaculture sets it apart from other players. There are three key elements of Qian Hu’s approach to aquaculture:
    1. the use of biologically clean water for fish and invertebrates
    2. the use of proven fish feed of the finest quality
    3. the use of herbal-based (plant extract) medication that is free of antibiotics
  • Management believes these three factors form the cornerstone of healthy, safe and responsible fish keeping and that at Qian Hu’s aquaculture farms in Hainan, the group is equipped to meet all the requirements for a flourishing aquatic ecosystem.

Qian Hu plans to grow this business

  • According to Qian Hu’s 2017 Annual Report, in the coming years, Qian Hu plans to grow this business via:
    1. Further improving the water quality by engineering a Recirculation Aquaculture System (RAS) which will redirect water through the tanks for continuous use.
    2. Extending the value chain to include larval, nursery and grow-out culture.
    3. Scaling the business through partnerships and joint ventures.
  • On the engineering front, Qian Hu will replicate its unique RAS that can recirculate water use. When completed, management believes the RAS will redirect water through the tanks for continuous use, and will improve the water quality many times over. This system will also reduce its environmental footprint by significantly reducing the amount of water it would potentially use otherwise, Qian Hu says.
  • Next, Qian Hu intends to further extend the aquaculture value chain to include not just breeding, but also larval (the developmental stage of fish which have hatched from the egg and received nutrients from the yolk sac until the yolk is completely absorbed), nursery (the stage where young fry are raised to juveniles) and grow out (the stage where juveniles are raised to market size products). It believes that with the planned breeding and cultivation of edible fish from the fingerling stage all the way through to the adult stage, there would be more opportunities to capture additional selling points throughout the product cycle. It would also help Qian Hu ensure that the group has a healthy, end-to-end product for consumers, according to management.
  • Further down the road, according to its 2017 Annual report, Qian Hu plans to develop potential partnerships and joint ventures with like-minded associates. Qian Hu believes that its technology, feed and medication can be applied anywhere in the world and the group is confident of its offering.


Positive on the outlook for aquaculture

  • Citing research from the World Bank (The World Bank: “FISH TO 2030: Prospects for Fisheries and Aquaculture,” Dec 2013), Qian Hu says it believes the production of edible fish on a global scale will continue to expand and grow continuously over the next decade. Countries in Southeast Asia are slated to be the main producers, representing approximately 89% of total production by 2025F, the research said.
  • At the local country level, the growth prospects for aquaculture are also very promising for China, which is slated to account for 62% of world aquaculture output by the same period, according to the research.
  • With its business based in the aquaculture hub of Hainan Province, China, Qian Hu believes the group is in the right place at the right time to capitalise on opportunities for growth.
  • In its 2017 annual report, Executive Chairman and Managing Director Kenny Yap wrote that in the next few years, Qian Hu aims to build its aquaculture business to be many times bigger than its other existing businesses.



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William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-09-04
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