Qian Hu Corporation - RHB Invest 2018-10-03: Expedition Series ~ Swimming With Fishes


Qian Hu Corporation - Expedition Series: Swimming With Fishes

  • We visited Qian Hu’s new aquaculture business in Hainan, China in late August.
  • Currently, Qian Hu’s main revenue from aquaculture comes from rearing grouper fry and selling them at a healthy profit margin weeks later. Qian Hu has an export licence in China, and is the only one in Hainan to obtain one. It currently importing marble goby, snapper and will look at expanding the range of fish to include varieties like pompano, etc.
  • We estimate this business will need about six months to a year to scale up, and could be a potentially exciting new growth driver for Qian Hu.
  • The last closing price of this unrated stock is SGD0.24. See Qian Hu's share price history

Venturing into aquaculture.

  • Qian Hu’s management has always wanted a new growth driver that complements its technological and food nutrition expertise. It finally found one in 2017, and ventured into aquaculture.
  • Qian Hu entered into a JV with a partner, Ms Zhang Mei Yu, that developed herb-based medication to improve the survival rate of the fishes. This, coupled with its strong ties to China, enabled Qian Hu to venture into Hainan, China where it established new fish farms.
  • Qian Hu holds a 51% stake in the JV, and management has not ruled out the possibility of owning it entirely in the near future.

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On the verge of a breakthrough.

  • Qian Hu is currently focused on rearing and selling grouper fingerlings. 
  • Fingerlings are reared for 2-4 weeks, during which they can grow 2-5cm. Currently, the average survival rate is 60-70%, but the company is working to boost it to 80% before ramping up production. The cost per fingerling is estimated at CNY1-2, and they are sold at about CNY4 – implying a rate of CNY0.5-0.6 per cm.
  • Currently, Qian Hu is selling an average of 100,000-200,000 fingerlings a month, and can ramp this up to 400,000-500,000, if needed.

Export license up to 2022.

  • Qian Hu has one of the few fish farms in China that has managed to secure an export licence (valid up to 2022). Currently, it mainly exports grouper and snapper fry, as well as marble goby to China, Singapore and Malaysia.
  • Management is also looking to export more types of fishes, like pompano, going forward.

Exploring other types of aquaculture.

  • Qian Hu is also exploring and experimenting with other types of aquaculture farming, like lobster farming and a shrimp hatchery.
  • During our visit, we noted there was a large number of snail farms in the vicinity, and management is exploring lobster farming as a viable option – since it offers a much higher ROI compared to snail farming. If successful, the company could then supply local farmers with lobster fry and work with them to rear lobsters, instead of snails.

A comeback in FY19?

  • With the ornamental business providing steady cash flow that should enable it to ramp up and strengthen its aquaculture business, Qian Hu could be making a comeback in terms of profitability in FY19. However, note that management will need about 6-9 months to conduct more research and development, and improve the survival rates of its grouper fry.

Refer to the PDF report attached for photos and further details from the expedition.

Jarick Seet RHB Securities Research | Lee Cai Ling RHB Invest | https://www.rhbinvest.com.sg/ 2018-10-03
SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998 Same 99998