A decade ago, Oceanus, under a previous management team, was keeling over a disastrous near wipe-out of its abalone farming business in China. As the extent of the damage became apparent, one of its creditors, a local bank, appointed liquidators to get ready to wade in and take the company to the cleaners.
Now, in a sign of how the tide has turned, Oceanus’ CEO Peter Koh was recently invited to the same bank’s Lunar New Year celebration and stood next to the bank’s CEO for lo hei.
Back in FY2013, the company was RMB444.6 million in the red. Staunching the bleeding and restructuring the debt took Koh the better part of the past six years. From having the by-now dubious honour of being one of the world’s largest abalone farmers, Oceanus has been steered by Koh into diversifying such that different parts of the company can help support one another.
On Feb 26, the company announced FY2020 earnings of $8.6 million, a sharp swing from losses of $7.4 million recorded in the preceding year. Revenue in the same period surged 855% to $91.7 million.
Looking back at the restructuring journey, Koh notes with no small measure of satisfaction that this milestone of achieving full-year profitability was something he has spent years slogging towards. “Let’s put it this way, how can we not know what’s our destiny? We really have to get out of the watchlist and one basic criterion is that we need to be profitable,” says Koh in an interview with The Edge Singapore, referring to the status under which troubled mainboard-listed companies are classified.
Koh recalls how when Oceanus acquired a media production business amid the longdrawn turnaround, the decision was not well received. A major brokerage took the view that Oceanus was merely grasping at any business it could get its hands on just to stay in business, and curbed the buying of Oceanus shares. Three months ago, a senior staff from the brokerage came by. “My boss asked me to get to know a bit more about your company,” Koh recalls his visitor saying.
Landlord, not farmers
To be sure, the FY2020 earnings were lifted by a couple of one-off items. For example, there was $1.5 million from the proceeds from the sale of a property in China that was made before Koh took over but which was bogged down for years. There was also a favourable foreign exchange gain of $3.5 million, and some lift from the blanket government wage support to all Singapore employees.
The headline numbers only tell half the story. Oceanus had already changed its abalone business model in the last couple of years. It used to run the farms itself and grow the abalones from juveniles — an undertaking that takes up to three years or more.
Oceanus now operates like a landlord instead. It leases the tanks to other abalone farmers to use for a three-year period at a rate of RMB1,800 ($370) per year. It also helped undertake some contract farming operations. Last year, Oceanus generated revenue of some $4 million from this business, while bearing minimal operational risks. The bulk of Oceanus’ turnover for FY2020, of $84.7 million, was from its relatively new regional distribution business which is a joint venture with a Chinese partner, Season Hong. In the preceding year, turnover from distribution was just $6.5 million.
If Koh can have his way, there is a lot more room to grow, as Oceanus expands its distribution network of both suppliers and customers. He believes that being a Singapore company with a distribution joint venture in China puts Oceanus in a very good stead. The regional heads of multinational FMCG companies — companies eyeing ways to reach the more than one billion Chinese consumers — have a big job title but they are still employees, end of the day.
As such, their biggest priority is not to have any nasty surprises popping up on them. “You guys have the transparency and governance, while at the same time, the distribution into China will give me my numbers,” he reasons, referring to the inherent credibility of being a Singapore company.
The market has presumably gotten wind of Oceanus’ markedly different prospects. From being what was a persistently a micro-penny stock for years, Oceanus’ shares have enjoyed a tremendous surge in market interest in recent months, often hitting top volume day in, day out.
When former cabinet minister Dr Yaacob Ibrahim joined Oceanus’ board last September as one of the new independent directors, trading interest went up even higher. The spike in trading volume came in conjunction with higher volatility.
On Feb 23, it hit a high of 7.8 cents but on March 3, it crashed by around half to as low as 3.6 cents. It closed on March 4 at 4.3 cents. The drastic movements triggered a query from the Singapore Exchange on the morning of March 3. “As previously announced, the company continues to make efforts to grow its business. At present, the company is not aware of any information not previously announced concerning the company, its subsidiaries or associated companies which, if known, might explain the trading,” Oceanus responded less than two hours later.
Tesla of FoodTech
Is the run in the share price justified? Koh declined to comment, but he has both big plans and a clear idea of how he wants to grow Oceanus. He characterised the time he spent as CEO of the company into three distinct phases: clean up, build up, and, from this year onwards, “tech-up” — aiming to be the Tesla of FoodTech and tapping new technologies to change the food industry at both production and distribution levels.
Last year, while the pandemic caused many companies to struggle, it had a different impact on Oceanus — the supply chain disruptions jolted countries and even individual cities to pay a lot more attention to their food security.
To this end, Koh aims to set up a series of Oceanus Food Tech Hubs across the region. The company, over the years, has developed ties with researchers from various universities and polytechnics to create newer and more efficient and innovative ways of farming. The hubs will be where the new techniques are put to paces on a commercial scale.
Koh says he will not be taking sole ownership of these hubs or committing significant capital expenditure to build and run these food hubs on his own. Rather, he will make it a point to partner with local governments or related local parties.
Koh sees himself like Hyatt, managing a chain of hotels —but instead of receiving a management fee, Oceanus will own minority stakes in the various hubs. This concept was already something Koh had in mind back in 2017, he says, but the priority then was to restructure the company. As such, the pandemic has, in a way, accelerated the rolling out of this concept. Koh adds there are talks with various potential parties but he is careful not to overstretch.
For now, Oceanus has announced two such hubs. One is on China’s Hainan Island, with partner Hainan Raffles Group. The other is here in Singapore at Tuas, in partnership with Universal Aquaculture, where operations can start in the middle of the year.
Koh did not share projections of capex for now as he prefers to have firmer plans on the scale and scope of the different projects before sharing. “We are still deliberating on the numbers. We want to be more definite,” he says.
He believes that high tech farming — even in countries with supposedly huge tracts of land — will be a growing trend, even though it is not apparent now. For example, in China, as the pace of industrialisation and commercialisation continues growing steadily, choice plots now used for farming are being steadily reduced. The produce from the various hubs will then be distributed through the networks run by Oceanus and its partners.
Koh plans to introduce key high-tech features into the platform that traditional players cannot be bothered with. For example, the produce will be tacked to a blockchain network so that there can be full traceability throughout the supply chain.
Koh envisions Oceanus to be the new model of how the food business should be run: combining both the production and distribution networks in one self-reinforcing loop. While Oceanus is focused on seafood, there is nothing stopping it from expanding into the production and distribution of other produce, he reasons.
Oceanus’ pedigree
Realistically, earnings from the nascent food production business will only be booked starting from FY2022. With the gap in the meantime and various projects in the pipeline, it is not too far-fetched to suggest that Oceanus might need to tap shareholders for additional capital. “We will definitely be looking into that,” says Koh readily, although there is nothing firmed up for now.
Incidentally, Koh is not planning to exit the abalone related business entirely. He jokes that he was partly goaded by how well the other major abalone brands of Singapore, New Moon and Skylight are doing. They do not own actual abalone farms but are able to own entire buildings. In contrast, Oceanus at one point was one of the largest abalone producers in the world but it didn’t have a corporate HQ in a building it owns — at least for now.
Nevertheless, at the rate how the other businesses are growing, the abalone business might become an increasingly insignificant part of the entire company. Even so, Koh is making sure Oceanus remains a name associated with this product. He explains that abalone is Oceanus’s pedigree, and given how other producers in China want to license Oceanus’ brand name to sell their own products, this is a brand name that has accumulated a certain level of cachet. “We started off with abalone, and we don’t want to lose that. And this pedigree is not losing money,” he says.
Indeed, Oceanus, under Koh, has undergone one of the more drastic changes among Singapore-listed companies. For many that have undergone similar restructuring, a common way to mark the new chapter is to change the company name. Koh will not entertain this thought. The business of Oceanus has changed, but the name Oceanus is to stay. “We want to show how we’ve truly turned around from where we were,” he says.
