After 20 years, integrated fish services provider Qian Hu has a new leader: Yap Kok Cheng. On Jan 1, the 42-year-old took over the ropes from his uncle Kenny Yap to become the company’s chief executive officer, while the older Yap continues to serve as its executive chairman.
Unlike his uncle, who is always jovial and outspoken, Kok Cheng comes across as more quiet and reserved. However, he is just as ambitious and has already set a long-term goal to bring Qian Hu’s revenue across the $100 million mark.
This seems an uphill task at this juncture, for the company has reported losses of $1.45 million for FY2020 ended Dec 31, a big reversal from earnings of $920,000 it reported in the year earlier. This translates to a net loss per share of 1.28 cents and net asset value of 43.81 cents, at the end of FY2020. By contrast, the company had earnings per share of 0.81 cents and a net asset value of 45.71 cents in FY2019.
Year to date, shares of Qian Hu have barely moved a needle, as it closed up a cent or 5% at 21 cents on Jan 13. This gives it a market value of just $23.8 million.
A big drag
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The company’s latest lacklustre performance was partly because of a $2 million impairment booked as revenue from Asian Arowana — a certain species of Dragon Fish it has expertise in producing — was affected by lower production yields and declining selling prices. Aside from this, its revenue for the year had inched down by 2.2% to $75.2 million, as its exports of ornamental and edible fish — and, to a smaller extent, aquarium and pet accessories — took a hit from the disruptions faced by global supply chains, particularly in 1HFY2020.
Kenny maintains that Qian Hu has a resilient business model that should not be too affected by economic cycles. “I do not believe that those who have lost their jobs, the very first thing they do is to go home and kill their fish or pets, no. In fact, we saw that they spent more on their pets while staying home,” he tells The Edge Singapore in an interview.
Drawing reference to the sale of pets, including fish, during past crises such as the Asian Financial Crisis in 1997, SARS in 2003 and the 2009 Global Financial Crisis, Kenny notes that prices had gone up by at least 10%.
However, relative to the previous downturns, the Covid-19 induced recession caused problems of another kind for Qian Hu in the form of difficulties in shipping out customers’ purchases.
To this end, income from its fish segment, which is highly dependent on airfreight, was down by 6.7% to $27.8 million in FY2020, as the restrictions to the global supply chains and the lockdown in China’s Hainan province dampened the prospects of its aquaculture business. However, the Yaps note that a further decline was mitigated by the recovery in supply chains seen in the second half of 2020.
Meanwhile, top line numbers were also affected by a 30.3% plummet in its plastics business to $8.1 million following the loss of a major customer. Still, the Yaps say demand for plastics has been picking up as it is considered essential in enhancing hygiene, particularly in sectors such as healthcare and the packaging of food and beverages.
Interestingly, the only segment that expanded was accessories, which saw a 10.8% y-o-y growth to $39.3 million, on the back of stronger exports. It also got a boost from the consolidation of its accessories operations in China as well as contributions from a newly acquired facility in Guangzhou.
In the face of lower revenue, the company actively managed its cost. For FY2020, its selling and distribution expenses were down 13.5% to $2.1 million, in line with the reduction in revenue contribution. Similarly, its finance costs were down 34.3% to $385,000 thanks to lower rates.
As of end-December, Qian Hu’s cash and cash equivalents stood at $19.1 million, up from $13.9 million in the year before. The group has declared a first and final dividend of 0.2 cents per share for FY2020, down from the 0.3 cents per share paid out in the previous year.
Chosen leader
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New CEO Kok Cheng appears unfazed at taking over at a time of losses. “From an operational point of view, the results [would have been] positive, without the write-off of the brooder stocks,” he mulls. With operations having picked up in 2HFY2020, he reckons that the momentum in the recovery across the company’s business segments is likely to continue into FY2021.
Kok Cheng’s optimism stems from a solid understanding of Qian Hu’s business model. Having joined Qian Hu’s management trainee programme in 2004, he has chalked up experience across the different business verticals. Most notably, he was posted to Beijing in 2005, where he started and headed the company’s exports, accessories and distribution business. This put a distance between him and the company’s first-generation management team, who are mainly his uncles. As such, Kok Cheng was required to make his own decisions and garner support from staff and business associates, explains Kenny.
As for why China was the chosen country, Kenny elaborates: “if you look at all the major companies in Singapore — many of the CEOs have experience in China or even India. The kind of experience that comes from working in these economies is invaluable”.
Interestingly, the search for Qian Hu’s new CEO had begun some 15 years ago. “I didn’t just wake up in the middle of the night and say ‘ya, let’s have a successor,’” chuckles Kenny. Instead, he says the idea was well thought out to ensure the long-term operations and success of Qian Hu.
“I realised that leaders of some family-owned businesses cannot detach their identity from the job and power they hold. So, they just hang on because they’re afraid of losing themselves once they do not have the power and status as chairman or CEO,” says Kenny.
A desire not to fall into this trap pushed him to start a management trainee programme, in hopes of eventually finding and grooming a successor. Kok Cheng was eventually identified as a suitable candidate based on his capabilities and, as of recent years, experience. Now as executive chairman, Kenny will mentor the new CEO, strengthen the diversity within Qian Hu’s board and also work towards improving its environmental, social and corporate governance initiatives.
Stronger aquaculture business
In line with Kok Cheng’s goal to push Qian Hu’s revenue past the $100 million mark, his first order of operations is to grow the company’s aquaculture arm. The Yaps say that the segment, which is many times bigger than its core ornamental fish segment, will generate sustainable, long-term growth.
Qian Hu’s foray into aquaculture, or edible fish farming, had begun in 2017 through a joint venture with a company in China’s Hainan province, which Kok Cheng had overseen. This project had started off with growing groupers with Chinese herbal medication, instead of antibiotics, as is typically prescribed. It also used an in house formulated fish feed and Hydropure water purification technology to facilitate this. This process resulted in higher yield and was eventually applied to fries and shrimps, Kok Cheng says. The way he sees it, working with Chinese counterparts on this project was advantageous to Qian Hu, given that China is a big market for food, and it produces some 60% of the world’s aquaculture.
More recently in 2019, the company established a hatchery in Singapore to cultivate freshwater shrimps. Under this, it has been working with several local farmers by supplying them with fries, which are consumed by shrimps.
To complement these efforts, Kok Cheng is looking to tap on technology to further enhance Qian Hu’s competencies, particularly in aquaculture. So far, the company has been investing over $1 million in its research and development efforts annually, and it intends to continue to do so regardless of how much profits it makes.
“We believe in investing in the future, rather than caring about share price or revenue because that means we can be more sustainable in the long run,” explains Kenny. In this vein, the company is now investing on re-circulation aquaculture systems which involves rearing fish or shrimps at high densities in a controlled environment indoors. The Yaps hope to supply their shrimps locally and contribute to Singapore’s “30 by 30” goal of fulfilling 30% of the nation’s nutritional needs locally by 2030. For comparison, Singapore’s shrimp imports amounted to some $80 million in the first eight months of 2020, Kok Cheng says.
Qian Hu is also looking to leverage technology in other areas such as developing new varieties of ornamental fish by altering the pigments on the fish for cosmetic purposes. Aside from this, it will also strengthen its plastics segment, particularly in the e-commerce market, for these materials are used as packaging for courier and deliveries.
These efforts aim to steer Qian Hu away from being just a fish company, to one experienced in supply chain and technology, says Kenny. His hope is for Kok Cheng to use these platforms to bring Qian Hu to even greater heights than it was, under him.
“Going forward, if Qian Hu goes down, then I have failed,” muses Kenny. “I hope that people can say, ‘Oh Kok Cheng is so much smarter than Kenny’. I think this is the best legacy anyone can leave for a company.”
