AGM on Mar 27, 2009
Knowing what other successful industries or person do to succeed in this dog-eat-dog world can provide new ideas to my present small animal practice, real estate and travel agency practice. This is one reason I attended the AGM of Oceanus Group Limited. I am a very small shareholder. These are the only shares I own as I have stopped buying shares for the last decades as I believe most of the shares were speculative gambling.
Oceanus Group Limited's Annual Report 2008 had provided detailed information showing high growth in acquiring more farm land and in production. Profit After Income Tax had shot up to RMB 339 million for FY2008 compared to RMB 181 million for FY2007. Yet the share prices are today S$0.13 per share, with the lowest being S$0.10. The highest was over S$0.40 in 2008 while the issued share was S$0.20. The world-wide economic recession has adversely reduced share prices of blue chip companies by as much as 50% and therefore Oceanus' share price drop is not unexpected.
Should I sell the shares at a loss or should I hold on to them? Should I buy more shares now to average up when the world recession recovers and become more prosperous?
None of the estimated 300 shareholders at the AGM which started at 3 p.m, raised any questions or objected to the proposals. Before I could warm my seat, the AGM was over. My watch showed 3.07 pm. At the end of the AGM, there was the free buffet of some fried finger food. A few shareholders asked Dr Ng some questions privately. I stood nearby hoping to catch their concerns. The following was a pertinent question:
1. Thefts
Lady Shareholder: "Won't the Chinese workers steal abalone from the tanks?"
Dr Ng: "There are strict checks on the numbers farmed by each team at the end of the day. Auditors do their checks too. If the abalones die in the tank, shells must be produced."
Lady shareholder:"The workers can bring some shells from outside." I presumed she meant that the thief ate the abalones and bring back the shells.
Dr Ng: "Abalones are reared in cages. It will not be so easy to steal the cages as they are very heavy. Come and visit the farms to see yourself. Pay your airfare and accommodation and the company will bring you on a tour of the farms. With free meals provided to shareholders."
Another query from a male shareholder
Male shareholder: "Do you add extra ingredients to make the abalone grow faster and bigger?"
Dr Ng: "No. Abalones are fed sea weeds which are available from the sea."
2. Farm tours
Some shareholders had requested free hotel and airfare to visit the abalone farms in China. This suggestion was not reasonable and therefore denied.
In 2008, I did visit 3 farms at my own expense by paying my hotel and airfare. The tour of Oceanus farms took more than 5 hours to visit as the 3 farms are in the countryside of Xiamen, China and are large farms. Some of these farms are bigger than more than 100 football fields.
Sea water from the ocean is pumped into the abalone tanks after it is filtered through the sand. I note that the water in the tanks looks very clear. Sea weed is fed to the abalones. Abalones are reared in cages after the juveniles which are attached to ceramic plates have grown to a certain size. I think it is 6 months. It takes 5 years to get an abalone to grown past 100 mm in shell length and such old abalones are most valuable. Slow growing ones are checked and sold early as one or two year olds. Company executives travel regularly to check on the production inventory while the independent directors travel to do their due diligence as Oceanus acquires new farms.
4. Innovative Retail Idea. There are many interesting factors ensuring the success of Oceanus in being a premier high quality affordable abalone for the middle class in China and all over the world. Its recent joint-venture with the famous Ah Yat abalone restaurant to set up an abalone food outlet in Shanghai, China had been very successful with large crowds. This retail concept of bringing affordable high quality Japanese abalones to the masses may lead to "McDonald's-like" chains and franchises all over China and the world. If this takes off, Oceanus will be rolling in the money and laughing its way to the bank.
5. Belief, Passion, Drive & Perseverance. The success of Oceanus depends on the belief, passion, drive and perseverance of the Executive Chairman who is a veterinarian by qualification. He has the four factors.
There is the one more factor - the experiences of doing businesses during the last 20 years in China. Dr Ng has this business management background in working for multi-national corporations in marketing and sales. One important factor to consider is that the company has zero debt as at December 31, 2008 while other companies are failing due to high debts.
Making Oceanus profitable in 2008 means that he has applied the knowledge of global business by integrating production, processing, retailing and starting abalone burger cafe restaurants (said to be targeted to be 100 cafes in China) to create new customers and sell his increased production directly abalones at affordable prices. The burger is now sold in one cafe in Shanghai and one website reported that it sell at around S$18.00 per burger containing one 2-year-old abalone. At the AGM, I was told by one officer that there were large demands for this burger. Abalone is traditionally affordable for the top 1% of the population in China as it is very expensive.
Dr Ng has the veterinary training which is now very useful as the training gave him the theories of animal diseases, prevention, treatment, quarantine and husbandry.
An example is the insurance of the abalone against disease for Oceanus. Many abalone farms in China, Taiwan, Australia and other countries have shut down production due to the spread of viral diseases and become bankrupted. As Dr Ng is a veterinarian by training, he understands the importance of using sea sand to filter the water reaching the abalone tanks daily against water pollution. Using sand which is available in the sea is much cheaper, thereby reducing overheads and increasing profits in the long term.
If Oceanus can sell abalone set at the anticipated 40 yuan, more than 1% of the population and the middle class in China will consume this highly priced shellfish which now sells at high priced restaurants at 300 yuan.
This means the extra production of abalones can be sold to meet the demand if the retail joint venture opens up 100 cafe restaurants. Stock analysts have expressed concerns about over production and the possible lack of consumers during this recession. Oceanus has had aggressively acquired more farms and increase tank and abalone production in 2008. Many abalone farmers have difficulty finding buyers in the past as their sales prices are high due to high production costs.
IDEAS ARISING FROM THIS AGM ATTENDANCE
1. Farm Tours. This is an opportunity for my travel agency to specialise in abalone farm tours for Oceanus. After all, niche marketing is more sustainable and profitable as a business than mass tourism with its rampant under-pricing. Expanding this concept, tomato farm tours can be set up for Lake Inle travel in Myanmar to educate young children living in urbanised Singapore about where their food comes from. It is surprising that some Singapore children think that their food comes from the supermarket.
2. Newsletters to shareholders. I was surprised that Dr Ng mentioned that newsletters may be a means to communicate with shareholders the progress of the company. Not all shareholders bother to go to Oceanus website to read the reports. In any case, I had not been able to access the website today, Saturday Mar 28 at 7am as the server appeared to be down.
Printed newsletters are good for shareholders and enhance investor relationships. Many companies and non-profits have given up on sending printed newsletters to members to save money and to save on trees. This idea may be relevant to my small animal practice to provide new information on small animal health and promotions of health care to my clients and retain them by posting to clients printed newsletters. Holding a newsletter to read is much more effective for the average busy pet owner than having to access the website for news.
In conclusion, should I sell my shares at a loss? No. One analyst recommends $0.19/share to buy in 2009. The market is down. Should I buy more shares to average up when the market recovers? If only I can afford them.
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