Oceanus Group Ltd

- Multi-million Dollar Restaurant Empire in the making

Restaurant Business

Much has been discussed about abalone farming since our initiation report on

Oceanus whereas restaurant and food processing segments were just briefly

mentioned as both were still in the very early development stage. About one

year since the RTO, Oceanus has made enormous progress and many changes

have taken place. We have witnessed impressive achievements made by the

management team. Some among them are strategic partnership with Ah Yat,

restaurants in Shanghai taking off very well, accomplishment in canning

processing techniques and so on.

The processing plant will be officially commenced in October this year and the

segment’s sales contribution is insignificant as of now. On the other hand,

restaurant business has taken off successfully in Shanghai and more outlet

openings are in the pipeline. Therefore, our focus in this report will be on

restaurant business, and its prospect, financial forecast and relevant matters will

be discussed in detail.

Reminiscent of Ajisen China:

aggressive network expansion plans for its “Ah Yat Tian Xia” abalone chain

restaurant is reminiscent of the renowned Ajisen (China) Holdings Ltd, which

was listed in 30 March 2007 in the Hong Kong Exchange. Similar success could

be seen for Oceanus, but at a much shorter timeframe compared to its peer.We believe Oceanus has an appealing story. Its

A distinctive advantage over peers:

its peers in the F&B sector lies in its complete presence along the value chain.

From abalone farming, processing, to food chain operator, Oceanus basically

has full control over its supply and demand for its abalone, which is one of the

key raw materials of its restaurants. As the world largest land-based abalone

farmer, Oceanus’s interest in ensuring sufficient supply of abalone for its

restaurant business is well safeguarded. Such a unique positioning in F&B

industry has not only created a synergy in the company, but also strengthened

its competitiveness in the industry.What makes Oceanus outstanding among

Maintain BUY; Raise target price to S$0.53:

from restaurant business in coming years, we prefer Sum of The Parts (SOTP)

valuation methodology which allows us to evaluate each division of the company

separately. Farming and food restaurant divisions are valued at 6x and 10x

FY10 EV/EBITDA respectively. Net debt is then netted off to derive a target price

of S$0.53 (previous S$0.44). We believe there is potentially significant upside for

our target price, if the restaurant business could achieve better turnover and

operating efficiency.In view of greater contribution