Oceanus

Oceanus: Could see negative sentiment, after reporting weaker FY10 figures. Despite the strong sales and larger population of abalones, with FY10 Rev at Rmb432.9m, +19%YoY, Net profit at Rmb188.5m, -46%YoY due to lower Fair Value gains of abalone recognized in FY10 vs FY09, which decreased from Rmb651m in FY09 to Rmb583m in FY10…..

Operational expenses also increased significantly in FY10, +81%, due to a larger number of caged abalones requiring more tanks, feed and labour; an expanded breeding programme producing 200m to 300m recently bred abalones; and new costs of putting some of the marketable abalones out to sea for fattening….

Grp’s F&B segment incurred a net loss of RMB59m for FY10 as a result of operating
losses and impairment charges of Rmb27.2m due to the restructuring of restaurant
business segment to reduce operating costs…..

Going forward, Grp will continue expanding its tank capacity, through acquisition of strategic land pieces or taking over of smaller farms and is considering to collaborate with sea-based farms on contractual basis to supply its baby abalones and feed. Also aims to grow its processing unit to be a high vol OEM processed abalone supplier of choice. As the F&B sector is highly competitive, Group evaluating the validity of its original intention to establish a chain of restaurants....

At current price, valuation appears fair, with grp trading at 13.25x FY10 P/E vs its historical average of 10x.