• MYR0.58 FV is based on 9x FY25F P/E. Ocean Fresh’s estimated MYR14m in IPO proceeds are to fund its working capital and expand its cold storage facility. It is set to benefit from: Government initiatives on ensuring long-term food security, and its strategic location near Kuantan port, ie the top fish landing site among 372 jetties in Malaysia. With a projected 2023-2026 earnings CAGR of 22.7%, driven by expanding cold storage capacities and cross-selling highermargin dried seafood products, Ocean Fresh’s FY25F dividend yield of c.7% and FY25F P/E of 4.4x highlight its undemanding valuation.

• Ensuring consistent seafood supply and quality. Ocean Fresh ensures a consistent year-round supply of high-quality frozen seafood through its extensive network of local and international suppliers, including wholesalers, processing facilities, and fishing enterprises. With three cold rooms that can store up to 1,700 tonnes of products, it efficiently manages inventory, controls costs, and meets customer demand even during supply shortages. The company uses 18 semi-contact blast freezers to freeze seafood at temperatures between -40°C and -42°C before storing it in cold rooms at -20°C, maintaining optimal freshness and quality. Additionally, it follows and maintains local and international quality and food safety standards (Figure 8).

• Sales growth from China and local markets. Management prioritises the China market for export sales, given the large population and substantial market size. In 2023, China accounted for 55.8% of the MYR19.2bn worth of frozen seafood sales in the Asia-Pacific, with a robust 7.8% CAGR from 2017 to 2023. The group also plans to cross-sell dried seafood in this market, thereby leveraging its network. Recent shifts in China consumers’ behaviour towards dried seafood – influenced by Japan's Fukushima Daiichi nuclear plant wastewater disposal plans – present further opportunities. With the global consumption of seafood being led by the Asia-Pacific countries, Malaysia tops the list at 52.7kg per capita while China’s stands at 39.9kg per capita (according to Our World in Data, 2021). As such, Ocean Fresh expanding its domestic market share and building e-commerce channels in Malaysia would be key to its local market growth.

• Boosting storage capacity. While Ocean Fresh is currently operating below 50% of production capacity, its cold storage facilities are nearing full capacity at 99.7%. Furthermore, it is storing 400 tonnes of seafood in external facilities. To support future growth, a new facility with six cold rooms and a loading bay will be added – this will boost storage by 3,000 tonnes to 4,700 tonnes (+180%) by 2H25. This expansion should help optimise production, pare down logistics costs, and make for strategic inventory management to capitalise on lower supply prices and widen margins.

• We project a 3-year earnings CAGR of 22.7%, and ascribe a P/E of 9x on FY25F earnings to derive our FV of MYR0.58. The valuation is at a 20% discount from the 11.5x trailing P/E of its local peer average (Figure 5) due to its smaller market capitalisation. Key risks: Product liability claims, operational risks, and non-renewal of certificates.

Source: RHB Securities Research - 20 Jun 2024