Oceanus

Oceanus: Chairman announced he has sent 7-8 people from the finance team in SG to take a stock-take of abalones for next 2-3wks, following grp’s net loss of Rmb 725m yuan for 3Q11, due to a fair value loss of Rmb 642.6m on biological assets as some 42m abalones died. The Chairman called the mortality rate as 'just not acceptable' as most of the abalones that died were larger-sized ones, while mortality rate of abalones typically reduces as they mature. Chairman declined to speculate how the abalone died in 3Q, preferring to explain how he is steering the group forward, and is confident of returning to the black in 2013.

We advise investors to exercise caution when trading with grp’s shares.
Below are some queries raised by investor’s on certain investor’s forum, following Oceanus Chairman’s announcement. Note however that this is based purely on the investor’s opinion/query and we are not able to verify the accuracy of his opinion, although it does provide an interesting angle:

1) Deloitte typically require more than 20 ppl spending three wks to cover a 5% sample of the total abalone population. Does that mean that previous stock take for the valuations was based on a 5% sample size and extrapolated?

2) New mortality of abalones "from now" has to be matched by new empty shells" that sounds like 100% counting from now===> imply previously NOT?

3) While the existing abalone stock still needs to be verified, some 500 tons of abalones that are 3 to 4 yrs old are expected to be sold early next yr. This is expected to generate cash of Rmb150m to Rmb 200m by 1H12------ Puzzle is, if they cannot verify existing stock, how can they make projections about the future?

4) The tanks are currently breeding abalones at low densities, an area he hopes to address. By working with good abalone breeders in China through profit sharing, yields can be improved and the number of tanks required for abalone breeding can be reduced to 10,000, down from over 30,000 currently---- the implication is that the missing abalones are NOT due to death by overcrowding since Dr Ng thinks that the tanks are at low densities. That is baffling, high mortality of biologicals are either due to toxicity, crowding (lack of space and pollution by excrement can reduce oxygen levels in the water) or wrong feed/feeding. Other factors like temperatures of water will only influence growth rates; not cause high mortalities.

5) Dr Ng called the mortality rate as 'just not acceptable' as most of the abalones that died were larger-sized ones. The mortality rate of abalones typically reduces as they mature----- To grow to adult size (i.e. larger ones), meant that the abalones has adapted well to the water conditions and if so why would an adapted abalone die suddenly? The crux of the problem is not with the rearing operations or aquaculture methodology but more likely with the stock taking!!

6) Given these plans, the group is confident of returning in the black in 2013----- Lets see what has been promised or tried so far; from renting out the tanks, to rearing sea cucumbers, to restaurant chain biz, to dried abalones, to lobster aquaculture, to KKR investing, to TDR listing. Dr Ng seems a very well connected person.