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SCMP Reporter

Take the world's biggest untapped market, mix in some multinational consumer names scrambling to get in and top it off with a sprinkling of e-commerce.

Sounds like a tasty recipe? Ocean-Land Group, lurking in a forgotten corner of the market, could be a stock to dust down and take a look at.

However, investors should take note that the ownership of the company - whose stock closed at 33.5 HK cents yesterday - is hazy. And its business, while long on potential, is still largely a concept.

Ocean-Land, a former property and shipping vehicle in the Winsor group, was taken over in 1997 by two obscure businessmen - Yuen Wai, a mainlander who came to Hong Kong in 1993, and Mongkon Cherloemchoedchoo, a Thai.

Then came a bizarre flow of deals. Out went the shipping business and some of the properties. In came a contract with Procter & Gamble to be the mainland distributor for the United States household goods giant. Sportswear company Puma came on board with an agency agreement with Ocean-Land.

To keep in step with the times, Ocean-Land bought a state-of-the-art electronic logistics system covering the mainland which was built by a unit of General Electric.

For a more high-profile new economy presence there is a 70 per cent stake in a joint venture with China Xinhua Bookstore to operate the online bookstore ebookschina.com.

So where did Ocean Land chairman Mr Yuen and director Mr Mongkon find the clout to achieve all that? The answer lies in one of their first deals after the takeover and is one of the big strengths and big weaknesses of the firm.

They brought in as a shareholder China Huatong Distribution and Industry Development (Group), the giant corporate entity created by Beijing to distribute commodities in the mainland.

Ocean-Land's investor relations officer Michelle Li said Huatong's stake in Ocean-Land stood at 6.86 per cent.

Ocean-Land chief operating officer Chung Ho said: 'Mr Yuen, when he was on the mainland, had very good connections and very close contacts with Huatong and the Internal Trade Bureau in China. He put Huatong and Ocean-Land together.'

Worldsec International analyst Alice Leung Wai-sze said those connections were so close that Mr Yuen was in fact a former employee of Huatong.

What seems to have happened - although Ocean-Land is coy in admitting it - is that Huatong has used the Hong Kong company as a backdoor listing, with its two titular leading shareholders acting as trustees.

Mr Chung said Huatong could come more to the fore if Beijing eased regulations on asset injections into Hong Kong companies. The direct stake could go to 20 per cent if Huatong converted all the bonds it had bought from Ocean-Land.

'The co-operation of the actual businesses has progressed very slowly primarily due to the Asian financial crisis,' Mr Chung said.

'This distribution business in China is severely restricted by Chinese policies as far as getting foreign investors involved. These two issues have been holding us back.

'Huatong is major shareholder but not a controlling shareholder. But I cannot say in the future they will not become a controlling shareholder.'

Leaving the ownership question on one side, Ocean-Land would seem to be in an ideal position with Beijing's entry into the World Trade Organisation around the corner. Western manufacturers will have unprecedented access to their dream market of 1.2 billion consumers but face a nightmare in getting goods through the mainland's primitive distribution channels.

Ocean-Land added to its attraction as a potential key to unlock that market last week.

In a deal set up by Huatong, Ocean-Land signed a letter of intent with the China National Container Corp (CNCC) to create an equal logistics joint venture in the mainland.

To some degree Ocean-Land will act as the brain with its Beijing-based electronic distribution network while CNCC will provide the brawn, and also 3,000 existing client companies, including names such as Japanese electronics giant Sharp and US brewer Budweiser.

CNCC claims to be the mainland's largest land-based logistics company, with a 5 per cent market share. It shifted 4.56 million tonnes of goods and 110,000 twenty-foot equivalent units in containers last year.

Should the deal go ahead, CNCC will inject all its logistics assets into the venture.

'A rough projection of their target is to quadruple earnings in five years,' Mr Chung said. 'This is assuming that their margins do not change. Their margins are just a shade above 2 per cent now. This is low by international standards.'

However, some analysts are still cautious. They want Ocean-Land to show them some money in the balance sheet. After all, the electronic distribution network is not expected to get up and running until next month.

Ms Leung said: 'They have to deliver what they say before they can get the attention of a lot of investors.'

Investors might have reason to be wary. In 1998, the company said it would invest 2.1 billion yuan (about HK$1.96 billion) in developing a grain-warehousing business with Huatong in the mainland. That project never got off the ground.



Hazy ownership obscures view of Ocean-Land despite vast potential