Oceanus Group - UOB Kay Hian 2021-01-20: Strong Turnaround; Targets To Build A Foodtech Company With Regional Presence


Oceanus Group - Strong Turnaround; Targets To Build A Foodtech Company With Regional Presence

  • CEO Peter Koh, who joined Oceanus in Dec 14, has delivered the promised turnaround and now aims to drive the company higher.
  • From the brink of bankruptcy, Oceanus has successfully cleaned up its business since 2017 and grown its revenue manifold from 2018-20. The recent setting up of Season Global will enable Oceanus to attract MNC brands and expand its China distribution business in a big way. Oceanus targets to build a foodtech company and to become a regional player.

New CEO, stronger shareholder and joining of a reputable independent director

  • Listed on the SGX since 2002, Oceanus Group (SGX:579) started as an abalone producer. In 2014, Oceanus experienced financial difficulties due to poor management and industry challenges.
  • Current CEO Peter Koh was a shareholder before he joined Oceanus at end-14. Peter has driven a strong turnaround as promised by growing revenue significantly, and he now aims to take Oceanus to a higher level with his wide business connection and management track record. The key initiatives undertaken by Peter include:
    1. cost cutting in Dec 14;
    2. clean-up operations in 2016; and
    3. strengthen the balance sheet in 2017 after reducing its debt to zero.
  • Alacrity Investment Group (Alacrity) became Oceanus’ largest shareholder in mid-20 after taking over the stake from a creditor group. Alacrity is an investment arm of an Indonesia conglomerate that has interest in the retail and logistics sector. It has long-term plans to help Oceanus expand its presence in the aquaculture chain.
  • In late-20, former minister Yaacob Ibrahim joined Oceanus as an independent director, and this could strengthen corporate governance and show better confidence in the company.

Season Global will penetrate China and deliver exponential growth.

  • Oceanus’s 3Q20 revenue of RMB135m has grown more than 6-fold y-o-y, thanks to its strategy in building the distribution business via the setting up of Season Global since Jan 20. The JV partner is a China FMCG conglomerate which has around 40 years of track record, more than 1,000 stock keep units from foodstuffs to alcohol and generates around S$200m revenue.
  • Oceanus and the JV partner have invested S$20m, and significant growth is expected with the opening up of markets and set-up of the e-commerce trading platform.

Targets to expand high-tech farming with regional presence.

  • Oceanus envisions the 2021-23 period to be its tech-up phase. COVID-19 has accelerated the demand for many major cities to build their own food supplies as a contingency plan. This has opened up many JV opportunities in the ASEAN, China and the Middle East regions.
  • To achieve its goal of building a foodtech company with regional presence, Oceanus aims to establish intellectual properties, build a network of key partners and embark on a global deployment of Oceanus foodtech hubs.
    • In Sep 20, Oceanus invested an undisclosed amount in Universal Aquaculture, which has developed a novel shrimp farming facility in Singapore. This could help develop in-house technology with a low capex business model.
    • In Nov 20, Oceanus signed an agreement with Hainan Raffles Group to set up the world’s first Oceanus foodtech Hub in Hainan, China, a key aquaculture centre for shrimp and fish farming in the region.

Near-term key catalysts include:

Exiting from the SGX watch-list.

  • Based on the profitability of RMB6.1m achieved in 9M20, Oceanus is on track to fulfil the condition to exit from the SGX watch-list. In Jan 21, Oceanus announced that it is no longer in the SGX list that requires mandatory quarterly financial reporting. This is an upgrade of confidence from SGX as it is loosening its reporting requirement for Oceanus.

Exponential revenue and earnings growth from Season Global.

  • Since establishing Season Global JV in Jan 20, the revenue and net profit of Oceanus has grown significantly. In 3Q20, Oceanus’ revenue grew by 626% y-o-y (+276% q-o-q) and net profit made a turnaround to RMB2.5m from a loss of RMB1.4m earlier. Oceanus expects this distribution division to drive significant growth with the opening up of more markets, especially in China.

Further expansion of aquaculture businesses.

Singapore Research UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-01-20
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