Technical | Fundamental Analysis Discussion Stocks Listed In Bursa

Tuesday, January 9, 2018

Bahvest (Borneo Aqua Harvest Berhad)

Bahvest (0098) - A Gold Miner & Fish Breeder.


With its strategy to maximize earnings from its fish breeding venture starting to pay off, investors are keeping their fingers crossed that the company’s latest move into gold mining in Tawau, Sabah, will bear fruit.

Minority shareholders are hoping both ventures can help ensure a substantial leap in earnings in the medium term for the company which has been in the red for the past five financial years.

Borneo Aqua’s acquisition of the entire stake in Wullersdorf Resources Sdn Bhd for RM131 mil was completed in January 2017. It enables the Sandakan-based company to diversify into gold mining.

The gold mining operations are at the clearing stage in July 2017. It will take another year before the goldmining operations can begin.

Its top officials did not confirm if the mine can produce up to 10,000 ounces of gold per month when operations reach full capacity, as was previously reported. Neither did he elaborate on the earliest date in which the mine can reach full capacity, and if the area concerned contains almost five tonnes of gold in total, as reported.

A market observer says based on the reported mining numbers, the outlook does look good for the company. Observers estimate the 10,000 ounces would translate to an annual revenue of some RM650 mil. That would be a quantum leap for BorneoAqua, whose revenue is in the range of RM20 mil to RM30 mil a year. If the area does indeed contain five tonnes of gold, this means at full capacity, the mine will be operational for less than two years.

However even if mining were to start in 12 months from July 2017, it is already be in FY19 (ending March). The full impact of the earnings contribution will only be felt in FY20. The full impact from the mining operations is also on the assumption the gold is sold immediately upon excavation. If gold is mined and the price is unfavourable, the ore may not be sold immediately. This will lead to lower earnings due to the mining cost.

Borneo Aqua’s venture into gold mining also comes at a time when the price is not too promising.

Borneo Aqua had to endure poor sales since FY14 due to the change in its fish-breeding business strategy. The company decided to rear part of its grouper fish batch to above 6kg before selling, to get a higher revenue from the bigger fish. Given the longer period required to attain the desired weight, it has less fish to sell during the transition period.

It did not elaborate on the average weight of the fish sold previously. Judging by its financial results, the company is climbing out from the trough of its sales decline.

Having recorded a decline of 25% per year in FY14 and FY15, revenue grew by 6% in FY16 to RM18.3 mil followed by a 70% leap in FY17 to RM31 mil. The jump in FY17 revenue was also attributed to the sale of cultured fish in Hong Kong. However, its FY17 net loss widened to RM3.81 mil from RM3.3 mil in the previous year.

The market observer says the growth in revenue means the fish breeding business strategy is working. However, in the medium term the high growth rate will falter. Hopefully, by then, gold mining will kick in.

The selling and distribution expenses fluctuated by between 18% and 35% as a percentage of FY17 revenue.

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