Background: China Fishery Group is a global integrated industrial fishing company. A subsidiary of mainboard-listed Pacific Andes Resources, it has access to fishing grounds worldwide. The company uses supertrawlers equipped with sonar fish-finding technology and navigation systems to optimise fish yields and minimise wastage.
Recent development: Revenue grew by 19.7% YoY to US$159.4m with net profit rising by 5% YoY to US$37.4m. This is attributed to higher total allowable catch volume for fishing season in 2011, higher contribution from trawling, which accounted for 78.4% of total revenue, as well as higher prices achieved on fishmeal and fish oil.
Our view
Higher operating expenses and one-off costs. In 3Q11, gross margins declined from 38.5% to 37.1% due to vessel operating expenses reflecting higher fuel costs as well as higher vessel repair and maintenance costs. Other operating expenses surged by 393.9% from US$1.3m to US$6.2m due to costs incurred from the proposed secondary listing in Oslo, which was withdrawn in 2010, and a one-off cost of US$2.7m on the closure of a fishmeal plant in Peru. Net margins fell from 23% to 21%.
Dual listing in Hong Kong delayed. China Fishery was to join its parent company, Pacific Andes, to dual-list on the Hong Kong Stock Exchange in December last year. But it had to postpone the plan until further notice owing to difficult market conditions.
Highly leveraged. The company is geared at 58.6% due to the four-year club loan facility agreement of US$425m signed in the previous year. Currently, 83.4% of its total borrowing comes from long-term debt.
Looking ahead. China Fishery sees potential in Africa and China, which currently generate over 75% of its revenue. It expects strong demand for fishmeal in China and higher fishmeal inventory levels carried forward to aid sales in the next quarter. The firm has been achieving a six-year CAGR of 43%. The stock currently trades at 7.3x PER and 1.2x P/B.
Key ratios…
Price-to-earnings: 7.3x
Price-to-NTA: 1.4x
Dividend per share / yield: S$0.05 / 4.1%
Net cash/(debt) per share: (US$0.14)
Share price S$1.215
Issued shares (m) 1,022.3
Market cap (S$m) 1,242.1
Free float (%) 29.4
Recent fundraising activities Jun10 – private placement to Carlyle Group; 113.5m new shares at $1.85/share, 26.7m warrants at S$1/share (S$190m)
Financial YE September
Major shareholders Super Investment – 69.8%, Carlyle Group – 11.1%
YTD change -46.4%
52-wk price range S$1.055-2.360
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