Oceanus 1Q09 results; Maintain BUY

Gain in fair value increased by RMB93.2m or 116% yoy to RMB173.1m in 1Q09. This was mainly due to the increase in abalone population by 48m units to 152.7m units in 1Q09.

Maiden sales of RMB2.7m contributed by its downstream businesses ? processing and food chain.

Cost of electricity and fuel increased by 166% to RMB10.3m in 1Q09, as a result of the increase in the number of tanks used from 6,950 in 1Q08 to 21,500 in 1Q09.

Staff cost increased 507% yoy to RMB10.7m in 1Q09 due to the increase in production workers, from 400 in 1Q08 to 1,050 workers in 1Q09. On a quarterly basis, staff cost decreased 44.7% due to a provision of FY08's management bonus in 4Q08.

Income tax increased by almost seven-fold due to expiry of full tax exemption in FY08 and higher provision of deferred tax of rmb8.7m and provision of withholding tax of RMB3.2m.

The 1Q09 results reassure us to maintain our view that Oceanus is substantially undervalued compared to its peer and the risk-reward ratio is in its favor. We continue to adopt conservative stance on valuation front by applying by applying 30% discount to the industry multiples. Based on FY09 book value and sales figure (instead of gain in fair value) and equally weighted P/B and P/S multiples, we derive our target price of $0.44. BUY.

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