• Growing Exports of Frozen Seafood Products to International Markets.
   
• Venturing Into the Processing and Trading of Dried Seafood Products.
   
• Expanding cold storage capabilities to cater to increasing demand.

• We expect the core net profit to grow at 14.9% and 8.0% to RM9.5m & RM10.2m, respectively for FY24-25f, underpinned by the higher sales from the expansion of the overseas market, with better procurement margins from suppliers as production scale improves.

• We derived a fair value of RM0.51 for OFB, upside of 82.1% against IPO price of RM0.28. The fair value is derived by pegging a P/E of 10.4x to the FY25f EPS of 4.9 sen. We believe a forward P/E of 10.4x is justified as it is in line with the average P/E of selected peers.

Investment Highlights

Growing exports of frozen seafood products to international markets. From FY20 to FY23, Ocean Fresh Berhad’s (OFB) revenue from international markets grew from RM84m to RM132m (+57.1%). Currently, OFB exports to China through importers. Going forward, OFB plans to collaborate with local wholesalers with the relevant import licenses to tap into their extensive network of customers. OFB hopes to secure the appointment of a wholesaler in China by 3QFY24, and strives to continue growing its exports to existing international markets such as Turkey to increase revenue.

Venturing into the processing and trading of dried seafood products. As of LPD, OFB’s revenues are solely generated from frozen seafood products. OFB plans to capture the demand for dried seafood on top of existing frozen seafood offerings as dried seafood requires lower production and distributions costs. Assuming the successful rollout of the dried seafood products by tapping along the existing customer networks, we expect it to provide meaningful topline and bottom line to OFB going forward.

Expanding cold storage capabilities to cater to increasing demand. OFB plans to utilise a part of the IPO proceeds to set up a new cold storage facility. The current cold storage facility can only house up to 1,700 tonnes and the new facility will increase the maximum capacity to 4,700 tonnes. The increase in cold storage capabilities allows OFB to store more products which maintains the freshness of products, as well as to preserve product availability during low harvest seasons, to ensure earnings stability.

Company Background

OFB commenced operations in 2002, processing and trading frozen seafood products with an annual production capacity of 9,000 tonnes. Currently, OFB has expanded its capacity to cater to 18,000 tonnes of frozen seafood products and a cold room storage capacity of 1,700 tonnes. OFB has obtained numerous certifications HACCP and GMP, HALAL from JAKIM etc.

Business Segments

1. Processing and trading of frozen seafood products (97.6% of Revenue)

OFB processes and trades frozen seafood products in bulk. The frozen seafood products such as molluscs, fishes and others are purchased from wholesalers and fishing enterprises. After purchasing the products, they are then processed through methods such as defrosting, cleaning and cutting, freezing using semi-contact blast freezers, glazing and packaging. After the processing, the products are packaged and labelled with OFB’s “Sea Planet” brand unless the customers have other specifications and requirements. OFB earns a margin from the sale of the products and mainly serve customers such as retailers, wholesalers, F&B service providers, as well as walk-in customers.

2. Provision of frozen seafood processing services (2.4% of Revenue)

OFB also provides frozen seafood processing services. The seafood supply is procured by the customers, where OFB only processes and packages it. OFB charges a service fee to customers.

Financials

In FY23, OFB’s core PATMI increased +46.4% YoY to RM8.2m despite a smaller topline improvement to RM159.5m (+2.0% YoY). The revenue increase is mainly due to the higher ASP of frozen seafood products with the relatively unchanged cost of sales which led OFB to enjoy better profit margins.

For FY24f, we project the topline to see further improvement to RM175.2m (+9.8% YoY), supported by the planned expansion into overseas exports. Meanwhile, we expect core net profit to grow to RM9.5m (+14.9%) & RM10.2m (+8.0%) for FY24-25f, in line with the potentially higher sales from the expansion of exports to the overseas market, assuming better procurement margins from suppliers as production scale improves.

Valuations

We derived a fair value of RM0.51 for OFB. Our fair value of RM0.51 (upside of 82.1% against IPO price of RM0.28) is derived by pegging a P/E of 10.4x to the FY25f EPS of 4.9 sen. We believe a forward P/E of 10.4x is justified as it is in line with the average current P/E of selected peers.

Investment risks

Exposed to foreign exchange fluctuations. OFB has suppliers which are transacted in USD & RMB, and OFB may be unable to pass on increased costs to its customers, therefore a weakening ringgit may affect profit margins.

Strong competition from other industry players. The frozen seafood products industry in Malaysia is competitive and fragmented with a large number of industry players. The barrier of entry of the industry is low and if OFB is unable to adapt to industry demand they may lose market share to the competitors.

Any issue with product safety and quality. If OFB’s product safety and quality are compromised, it will cause OFB to receive liability and regulatory claims, as well as damage OFB’s branding and recognition

Dependent on Key senior management. Discontinuation of service of the key senior management may disrupt key decision making within OFB’s business operations.

Source: Mplus Research - 20 Jun 2024