BUY
Price S$1.15
Previous S$1.77
Target S$1.50
3QFY11 net profit up 5% YoY, within our expectations. Net profit for the period came in at US$37m, which was down 18% QoQ. Earnings were supported by a 80% YoY increase in fishmeal operation revenue, which was partially off-set by a 16% YoY decline in revenue from the North Pacific operations. We have lowered our share base assumptions following CFG’s announcement on delays in its HK dual listing, and have fine-tuned our earnings estimates. Following the recent global sell-down in equity markets, we think CFG’s valuations look more attractive, and maintain our BUY call, but with a lower TP of S$1.50 (from S$1.77 previously), as we take into account a decline in valuations for its peers. Our TP implies an FY12 P/E of 8.2x, which is on par with the average FY12 P/E of its Oslo peers.
Valuations more attractive after sell-down; delay in HK dual listing mildly positive. CFG’s share price fell some 17% since early Aug 11 when global markets suffered a sell-down after US’ debt rating was downgraded. We think valuations appear even more attractive with CFG currently trading at 7.3x FY11/6.3x FY12 P/E. We believe its delay in HK dual listing (announced on 1 Aug 11) could also be mildly positive for the counter as we factor in less share base dilution (due to no new shares being issued) which provides a slight booster for FY11/FY12 EPS in our opinion.
Peru fishmeal operations drove 3QFY11 earnings. Fishmeal operations was the earnings driver for 3QFY11 with revenue expanding 80% YoY to US$81m mainly due to a 80% YoY increase in sales volume. The higher volumes were largely due to a higher TAC for the first fishing season in FY11 as well as higher inventory carried forward for sale from 2QFY11. We expect higher fishmeal inventory levels to support the coming quarter’s earnings as well.
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