• Results in line, expect a stronger 2H09.
• No change in forecasts or assumptions.
• Maintain HOLD, Target Price raised to S$0.38.

Oceanus’ 2Q09 results were in line with our expectations.
For 1H09, fair value gain from biological assets increased 34% y-o-y to RMB298m, though sales of aquaculture products declined 24% y-o-y to RMB139m. This was mainly due to higher abalone prices in 1H08, especially in 2Q08 when the
abalone supply was hit by red tide and algae bloom. Reported recurrent net profit increased 9.4% y-o-y to RMB187m or EPS of S2.2cts in 1H09. Farming capacity increased another 500 tanks in 2Q09 to 24,500 tanks, containing RMB606m of biological assets, which was increased from RMB547m at end-1Q09.

Oceanus’ downstream businesses, i.e. cafeteria restaurants and abalone processing, are both developing on track and are expected to generate more operating cash flow and net profit to the Group in 2H09.

Oceanus is in a fast growing ramp-up period, and we expect its 2H09 earnings to be substantially higher than 1H09. The execution of the growth strategies so far is in line with our expectations, and its recent issue of S$73.5m debt with warrants will fulfill most of its remaining capex for FY09 and at least 1H10.

No change in earnings forecast, maintain HOLD, TP raised to S$0.38, based on 8x FY10 adjusted EPS, as we roll over to FY09&10 blended adjusted EPS. We believe the current share price has fairly priced in most of its growth potential, as compared with its peers. Downside risk lies in the execution of the growth strategies.

Source: DBS Vickers