Latest / Investor Exchange / Reviving the Reef: Qian Hu's 2024 Comeback

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Reviving the Reef: Qian Hu's 2024 Comeback · Investor Exchange

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  Music.
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  All right, so welcome to The Deep Dive. Yeah. You know, where we like to really
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  get into the nitty-gritty of all sorts of fascinating companies and business trends.
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  And today we are diving deep into Keonhue Corporation Limited.
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  They might be familiar to some of you out there for their ornamental fish.
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  Yeah, exactly. But they're involved in a lot more than just that. Yeah, they really are.
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  Aquaculture, pet accessories, even plastics. Plastics. Yeah.
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  It's pretty impressive. And we've got their interim financial report ready to
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  go for you. the second half of 2024, and the full year report ending December 31st, 2024.
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  And it is a comeback story. So if you remember last year, they posted a pretty
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  significant loss. Yeah.
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  $9.1 million to be exact. Right. Not great.
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  Not great. But this year they are back in the black.
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  Yeah. They made a profit. So we're going to really break down what drove this
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  turnaround, what were the factors behind their wins and losses in each segment,
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  and then of course, What does their future look like? What might it hold?
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  It's interesting because their revenue only grew by 1.6% in FY 2024 to reach $71.4 million.
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  So not a huge jump, not a huge jump, but enough to get them back into profitability.
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  That's right. And that's sometimes all it takes.
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  Yeah, especially after a year like they had, you know, the previous year. Yeah.
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  So let's kind of break this down by segment, see what's really going on here.
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  Sounds good. Starting with their core business, the fish segment. Yeah.
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  So in the fish segment, revenue actually jumped up by a much healthier 6.1 percent in FY 2024.
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  OK. Their aquaculture business is doing really well, particularly the exports
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  of marble goby from their Hainan farm.
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  We're going to have to get into that marble goby a little bit later.
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  I'm very curious about that.
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  Even though things are going well, there are always little wrinkles.
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  OK, like what? Well, despite the revenue growth, profit before tax actually
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  dipped a little, and that's likely due to decreased revenue from handling fees for transcriptments.
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  So it's just a reminder that even when a segment is doing well overall.
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  You know, we have to look at all the different factors, all those little nuances.
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  Absolutely. And speaking of nuances, they had some pretty serious headwinds
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  in the first half of 2024.
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  Right. I mean, there were those geopolitical issues we were talking about before
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  we started recording and the trade tensions.
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  Right. And those did have an initial impact on the fish segment.
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  And what's impressive is how they managed to recover so strongly in the second half of the year.
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  That kind of resilience, I think, is going to be key for any business that wants
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  to thrive in today's global landscape.
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  Absolutely. All right. Let's move on to the accessory segment.
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  Okay. Now, this one's a little bit of a head scratcher for me because they saw
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  a 1.8 percent revenue decline in FY 2024.
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  Yes. And, you know, that's understandable given the weakening global purchasing
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  sentiment we've been seeing and just the broader economic uncertainty that's
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  kind of hanging over everything right now.
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  But here's where things get really interesting, despite that revenue dip.
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  Their profit in this segment skyrocketed by 121%. Wait, how is that even possible?
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  Less revenue, way more profit? It really is a great example of how effective
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  their strategic maneuvering has been.
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  And a few things are contributing to that impressive profit jump.
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  First, they received a one-time compensation income from land expropriation in China.
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  Okay, so that definitely helped. A little windfall. Yeah, but they also made
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  some really smart internal changes. They streamlined their inventory management,
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  which means less money tied up in products that aren't selling. Makes sense.
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  And they've been really focusing on developing and selling higher margin products,
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  their own in-house proprietary products.
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  So they're making more money on each product they sell. Exactly.
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  They're holding less inventory. It's like a recipe for profit growth,
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  even if the sales are down a little bit. Exactly.
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  What about the plastic segment? What do you think is going on over there?
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  Well, I know that the revenue in the plastic segment was relatively flat.
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  Which isn't necessarily a bad thing in a shaky economy like we've got right
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  now, but I did see that their profitability improved. So I'm curious about that as well.
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  Right. So profitability improved thanks to better margins and what we call a
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  more favorable sales mix.
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  Okay. So it sounds like they're really laser focused on maximizing that profitability
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  across all their segments.
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  They are. And it's not just reacting to current market conditions.
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  They're really trying to shape their future. You know, they've announced plans
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  to expand their plastic segment into Malaysia, and they're exploring that whole
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  exciting world of biodegradable plastics.
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  Really? Yeah. That's really smart. They're anticipating these future trends,
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  and they're positioning themselves to capitalize on them, and that's what it's
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  all about. They're not content with just surviving.
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  They're aiming for that sustainable growth.
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  Exactly. And before we move on too far, let's take a quick look at their overall financial health.
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  We'll call it a checkup on the balance sheet. Okay, I like it.
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  Total assets decreased a bit, mainly due to lower inventory,
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  which we already talked about as a good thing, and also lower cash on hand.
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  Their liabilities also decreased largely due to loan repayments.
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  So less debt, more money.
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  That's always a good thing. A good sign, yeah. Are there any potential warning
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  signs that we should be aware of, though?
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  Well, there's one thing that kind of caught my eye, and that's the slight increase
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  in their trade receivable days.
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  OK, so that basically means it's taking them a little longer to collect money
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  from their customers. Exactly. And there are a couple of reasons why that might be happening.
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  One, it could be that they're offering more generous payment terms.
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  Sure. To attract new business in this tough market. Yeah. You know,
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  or it could mean that customers are just taking longer to pay their bills.
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  Right. Which could point to potential cash flow issues down the line. Exactly.
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  So it's not a red flag necessarily. But it's something to keep an eye on. Yeah, absolutely.
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  So cash flow, the lifeblood of a business. How's their lifeblood looking?
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  It seems to be flowing pretty well, actually. OK.
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  Their operating cash flow improved in FY 2024, driven by those higher profits
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  and the leaner inventory that we were talking about earlier.
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  So they're making money and they're managing it efficiently.
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  Yeah. That's a great sign. So where's all that cash going? Are they reinvesting
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  it back into the business?
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  Are they paying down that debt or are they rewarding their shareholders?
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  A little bit of all of the above. What's going on? All of the above, I think it's safe to say.
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  So a portion of it has been directed towards capital expenditures,
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  which includes the acquisition of a new building. So that shows their commitment to future growth.
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  They've also been diligently chipping away at their loans and lease liabilities,
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  which, as you said, is always a good sign.
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  And then there are those dividend payments. The dividends got to keep investors
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  happy. Got to keep them happy. It's always a good thing.
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  Indeed. And the directors have proposed a final dividend of $0.004 per share.
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  It's a small increase from last year. Sure.
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  But considering they were in the red last year, it's a really clear signal of
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  confidence in their financial performance and their future prospects.
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  Absolutely. It definitely sends the message that they believe in their ability
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  to continue this positive momentum. So let's talk about the future. Thank you.
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  What's the outlook for Qian Hu in FY 2025?
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  Are they expecting to stay on this upward trajectory?
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  Well, their outlook statement definitely acknowledges that the global economic
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  environment is still challenging.
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  Right. But what's interesting is how they're approaching these challenges.
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  Okay. Instead of just sort of hunkering down and waiting for the storm to pass,
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  they're forging ahead with these ambitious plans for expansion.
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  They want to further grow their aquaculture and pet accessories segments,
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  and they're really committed to investing in research and development, particularly in AI.
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  That's really interesting. They're not just adapting to this current environment.
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  They're trying to shape the future. Exactly.
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  But are they maybe being overly optimistic? I mean, there's a lot of uncertainty
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  out there. It's a great question.
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  What's clear is that Tianhu is taking this multi-pronged approach.
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  You know, they're sticking to their core strengths in ornamental fish and aquaculture,
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  while also diversifying into these other promising areas like pet accessories
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  and biodegradable plastics.
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  And keeping a close eye on their financials, it sounds like,
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  making sure that balance sheet is strong and that cash flow is healthy,
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  all while investing in innovation.
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  Exactly. It's a delicate balancing
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  act. Yeah. But one that they seem to be managing pretty well so far.
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  I think it's worth highlighting Qian Hu's commitment to innovation.
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  I mean, they're not just dipping their toes in the water here.
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  Yeah, they're really going all in.
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  You know, we touched on it briefly, but their one Tianhu digital platform,
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  it's more than just a catchy name.
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  Right. It's a real game changer. It's a game changer.
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  And rolling that out across all their subsidiaries in FY 2024.
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  I mean, that was a brilliant move.
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  Getting everyone on the same system, streamlining those processes.
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  Automating where possible.
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  Yeah. That's how you boost efficiency and ultimately profitability.
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  Yeah, it's like they took a page right out of the Silicon Valley playbook.
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  And applied it to fish and plastics. That's a great way to put it.
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  And they're not stopping their, I mean, we talked about their exploration of AI.
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  I'm still trying to wrap my head around that AI for fish breeding,
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  it sounds like something out of a sci-fi movie.
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  It does sound futuristic, right? But think about the possibilities.
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  Algorithms analyzing massive data sets about fish genetics, water conditions.
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  Growth rates, feeding schedules, you name it.
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  So they could potentially optimize every aspect of the breeding process.
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  Exactly. Instead of relying solely on those traditional breeding methods,
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  they can use AI to identify the ideal breeding pairs, optimize feeding schedules
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  to really maximize growth, maybe even predict disease outbreaks before they happen.
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  Wow. So they could be one step ahead of any potential problems.
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  Exactly. It's like preventive venison for fish.
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  That's amazing. But is that really realistic?
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  Is that something that's actually happening or is this more of a long term vision?
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  It's definitely more of a long term bet right now. AI for fish breeding is still
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  in those early stages, but it just goes to show how Key and Hu is thinking ahead.
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  You know, they're always looking for those ways to innovate,
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  to gain that competitive edge. It's smart to kind of keep an eye on the horizon. Always.
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  What's coming next. All right. So let's shift gears a little bit and focus on
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  some of their more immediate plans for FY 2025.
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  Their outlook statement clearly
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  emphasizes expansion. Yes. In both aquaculture and pet accessories.
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  Which makes perfect sense given the global trends. I mean, the demand for high quality seafood.
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  It's only going up. Right. And the pet industry, I mean, it's booming.
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  Oh, yeah. People are spending a fortune on their pets these days.
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  They are. And Keenan Hu is in a great position to capitalize on all of that.
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  Yeah. Their new aquaculture farm in Malaysia is already up and running.
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  It is. Focusing on that marble goby.
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  Yes, the marble goby. I'm telling you, we need to do a whole deep dive on this
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  fish. I think we do. I think the marble goby deserves its own episode.
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  They really seem to have a winning formula with this fish.
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  What is it about the Marble Gobi that makes it so special? Well,
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  from a business perspective, it's a great choice.
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  I mean, it's a delicious fish, very versatile, high demand in both Singapore and Malaysia.
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  So there's a market for it. There's a huge market. And it thrives in these intensive
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  farming systems that Keenan Hu has really mastered.
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  So they're meeting that market demand with a product that they can produce efficiently and profitably.
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  Exactly. And that's how you build a sustainable business. Absolutely.
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  What about the pet accessories side of things? Any interesting developments
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  there? Well, this is where their collaboration with N&E Innovations comes into play.
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  They're teaming up to launch a new line of pet products using this really innovative
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  technology called AMR. AMR.
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  I'm not familiar with that. What is that? It stands for Agricultural Material
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  Residue. Okay. And it's basically taking fruit waste, things like peels and seeds.
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  Okay. And transforming it into this biodegradable material.
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  So they're making pet products out of fruit waste. They are. That's amazing.
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  It's a great example of that circular economy we're always hearing about,
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  you know, taking something that would normally be discarded and turning it into something valuable.
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  I love it. And what kind of pet products are we talking about here?
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  Well, they're starting with cat litter wet wipes, even anti-odor sprays.
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  So they're really tapping into that eco-conscious consumer market.
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  They are. And they're doing their part for sustainability at the same time. It's a win-win.
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  It really is. And it just showcases their forward-thinking approach.
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  You know, they're not chasing those short-term profits.
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  They're building a sustainable business. And I think that's something investors
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  should pay attention to. They should, for sure.
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  All right. So it sounds like they've got their core businesses humming along.
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  They're expanding strategically.
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  They're investing in innovation.
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  But, you know, they're not operating in a vacuum. We can't forget about those
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  global challenges that we were talking about.
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  Right. Those challenges are still out there. So those economic uncertainties,
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  the geopolitical tensions, the U.S.-China trade war...
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  They're still looming large. They are. So the big question is,
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  can Qian Hu maintain this momentum in the face of all of that?
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  Can they weather the storm, so to speak? That's the million-dollar question, isn't it?
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  It is. I mean, we've seen how resilient they are. We've seen their ability to
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  adapt. They've shown that they can make tough decisions. They can streamline
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  their operations. They can embrace innovation.
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  But the next chapter of their story hasn't been written yet.
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  Exactly. OK, so we've talked about Key and Hugh's impressive turnaround in FY 2024.
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  You know, there's smart strategies and those ambitious plans for FY 2025.
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  Right. But we can't forget about those global headwinds, you know,
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  those challenges that are still out there. Exactly. And those are some pretty
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  significant headwinds.
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  So what does the economic forecast tell us? What kind of a storm are they potentially sailing into?
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  Well, the outlook's a bit mixed. You know, the U.S. Federal Reserve is signaling
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  caution on interest rate cuts in 2025.
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  They're concerned about those persistent inflation risks that we keep hearing about.
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  Yeah, inflation. It's the word on everyone's mind these days.
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  It is. And then there's that elephant in the room, the U.S.-China trade war. Right.
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  It's been simmering for years, and it doesn't look like it's going away anytime
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  soon. No. No signs of cooling down. And that creates uncertainty in the global economy.
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  Yeah, especially for a company like Keenhu that has so much business tied to China.
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  Exactly. And let's not forget about Europe. They're dealing with their own set
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  of economic and political challenges over there. It's a complicated world out there.
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  So how can Keen Hue prepare for a potential economic storm?
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  What's their strategy for navigating these, you know, choppy waters?
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  Well, they seem to be taking a multifaceted approach. Okay.
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  First, they're sticking to their core strengths, you know, ornamental fish and aquaculture.
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  Makes sense. They've built a solid reputation for quality and reliability in
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  those sectors, and that gives them a really strong foundation.
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  Right. It's like they're saying, we know fish. Exactly. We do fish well.
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  We do it well. And second, they're not putting all their eggs in one basket.
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  Right. Diversification. Diversification, exactly, by branching out into pet
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  accessories and exploring those biodegradable plastics.
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  Yeah. They're creating multiple avenues for growth and reducing their reliance
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  on any single market. it.
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  And third, they're not just sitting back and relaxing. They're constantly innovating. That's right.
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  You know, that commitment to innovation from their digital platform to exploring
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  AI, it shows that they have that forward thinking mentality,
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  which is essential for long term success.
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  But even with the best strategies in place, there are always risks.
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  Of course. I mean, global economics are volatile. Consumer confidence can change.
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  Overnight supply chains can be disrupted. There's no way to eliminate all risk.
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  So where does this leave Key on Who?
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  Can they really pull off another strong performance in FY 2025,
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  given all these potential challenges?
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  That's the question we're all asking, isn't it? It is. They've proven that they
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  can adapt. They can make tough decisions. They can bounce back from setbacks.
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  I mean, their turnaround in FY 2024 was really impressive. It was.
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  They've embraced innovation. They've positioned themselves strategically.
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  But the global landscape is complex. It is. It's like predicting the weather. Yeah.
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  You can analyze the patterns and make educated guesses, but they're always surprises.
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  Always surprises. Well said. Kino Shoes, it's a fascinating case study,
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  I think, in business resilience and adaptability.
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  As we've seen Xi'an Hu as a company in motion, and their story is definitely
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  far from over, it'll be really fascinating to see how they handle all the challenges
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  and opportunities that lie ahead. So until next time, keep exploring,
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  keep learning and keep diving deep with us here on The Deep Dive.
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  Music.