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: We believe Oceanus has an appealing story. Its 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.

A distinctive advantage over peers: What makes Oceanus outstanding among 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.

Maintain BUY; Raise target price to S$0.53: In view of greater contribution 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.