Ocean Fresh IPO: Is the Ocean that Blue?

Ho Su Wei
6 min readJun 25, 2024

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“Farm Fresh spin off its cow milk business to include sea cows too?” That was my first reaction when I read the headline on Ocean Fresh.

Granted, I shouldn’t judge.

But this is the third company that I have seen that has the ‘Fresh’ in their name. But then most of them have been around for more than 10 years. If anything, they should just put ‘Old’.

Ocean Fresh just announced that it is going to list itself in the ACE market, trying to raise about RM14 million.

But who are they? Are they any good?

Now, I don’t believe in stock-picking (even though I pick my nose sometimes). Instead, I will provide you with the information you need to look at, and you have to make the decision.

The good, the bad, and the ugly. Perfectly balanced as all things should be, just like Thanos envisioned, except I am not a mass murderer.

What do they do?

Have you ever gone to the supermarket and seen those frozen seafood products?

Ocean Fresh is in that business. it processes, packages, and sells them to various supermarkets and retailers in Malaysia and other countries such as Turkey, China, Thailand, Vietnam, and Japan.

But if you ask me, is Ocean Fresh’s business something groundbreaking? No. And this is actually good … cause it’s boring and straightforward.

Call me old school or as my wife says, uncle, but I tend to like simple businesses. And Ocean Fresh is that guy.

What is the money used for?

RM14 million.

And what will they be used for? They want to build a new cold storage facility that costs about RM8 million.

Make sense. More storage equals more shit they can store and sell. It will have six new cold rooms and a loading bay and has a build-up area of 3,747 meters.

Before this, their capacity utilisation was 99%, which means full and probably fuller than my bank account. It will increase their total storage from 1,700 tonnes to 4,700 tonnes.

Since they are planning to expand by 2.5 times, they also expect 2.5 times in revenue.

Well, that … depends. Its financial performance in the past 5 years and its prospects moving forward.

Financials?

Thank god Ocean Fresh is profitable.

You don’t know how many companies I have been looking at that isn’t even profitable. And they are looking to list themselves. I am looking at you, tech companies!

The simple way to think about Ocean Fresh is that it depends on scale. This means they have quite a lot of initial costs to make up for.

It needs to sell past a certain volume to reap higher profit margins. In this case, they invest a lot in refrigeration facilities. If it’s not full capacity, they still have to pay the loan on the equipment, and maintenance.

Luckily, Ocean Fresh is operating at almost full capacity (99%) and they are trying to expand. This means that it is generating high-profit margins in 2023. Profit margin increased from 2.6% in 2020 to 4.4% in 2023.

And of course, revenue has expanded from RM94 million to RM159 million over the same period. See my point in scaling?

Prospects?

Do you buy frozen seafood products?

Hmm, well, I did buy them during the pandemic. The only choice for seafood for my family during then was ordering delivery of frozen seafood products.

Hence, you see that Ocean Fresh’s revenue expanded by 68% to RM158 million in 2021 from RM94 million.

But it is 2024. The pandemic is over. I can now buy fresh seafood products from the market. I don’t actually need frozen ones.

That’s why you see Ocean Fresh’s revenue flatlined in 2022 (RM156 million) and 2023 (RM159 million).

If you ask my honest opinion, I am not entirely sure whether the expansion of its facilities will bring about 2.5 times the revenue it is indirectly expecting.

However, that is just my personal opinion.

I have summarised the independent market report by Providence here. There are essentially 3 main points to consider for Ocean Fresh.

  1. Malaysian seafood processing industry to grow at an average growth rate of 9.4% between 2024 and 2027.
  2. Asia Pacific and specifically China will drive most of the growth in the seafood market.
  3. The dried seafood market grew by an average of 3.6% between 2017 and 2023.

Firstly, Providence thinks that the seafood processing industry will boom. My opinion? Maybe. I can certainly see many people moving to processed food more and more these days.

The reasoning for China being the main driver of consumption seems valid too. After all, they have the highest population in Asia Pacific (well, India has now overtaken it) and we know how much the Chinese (including me) like seafood.

But if you look at China these days, well, it doesn’t seem to be too hot. The property market is in shambles, with much of the Chinese wealth stuck there.

Yes, they would want to consume seafood, but I would like to rationalise those expectations. Chinese consumers are struggling. Its youth unemployment is high.

I would certainly commend that Ocean Fresh’s thinking is right. It has two main strategies.

Expand into China and dried seafood products.

China is a safe bet for expansion. Dried seafood products don’t require high initial costs and can be transported as is without refrigeration facilities.

But I don’t think 2.5 times revenue is achievable in the short term. Maybe in 5 to 8 years from now, but certainly now 2 to 3 years from now.

Risks?

Of course, there are a lot of risks that I see for this company.

Firstly, it needs a steady supply of fresh seafood to process. And the world today is volatile. Seafood stock is declining considerably and supply chains are vulnerable. Prices are also … yo-yo.

Ocean Fresh would have to deal with the ever-changing supply chain of the seafood industry.

Secondly, product safety and guidelines. I shudder when I think about this. This is something people eat. And it’s processed and frozen, and transported halfway around the world. Many things can go wrong. A small one could doom the company.

Finally, I am worried about them stating that foreign workers is a risk in their processing plant. If you don’t know, foreign labour has been a subject of controversy in Malaysia recently.

60% of Ocean Fresh’s facilities employees are foreign workers. Regulations are always changing in Malaysia regarding this. And recently, it has not been cheap at all to bring them.

But most of the local workers do not want to work these jobs. Any day now, Ocean Fresh could face a severe shortage of workers in its facilities.

Valuation?

Ocean Fresh will be listed for RM0.28 per share.

This means a price-to-earnings ratio of 8.5 times. For comparison, PT Resources Holding Berhad, which is its biggest competitor is now trading at a price-to-earnings ratio of 5.8 times.

The food industry in general is trading at 19.5 times now.

So, when I look at this, I think Ocean Fresh might be underselling itself. But this is hard to tell. Ocean seafood products are quite niche.

Use this comparison to tell whether it’s cheap or worth it to buy from a valuation standpoint. But you still have to do your fundamental research into the long-term prospects of Ocean Fresh.

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Ho Su Wei

Founder of Slice of P.I.E and hopes to provide simple investment, economics and personal development insights to ordinary people.