Background: China Fishery Group (CFG) is a leading integrated industrial fishing company with access to some of the world’s most important fishing grounds. It typically employs supertrawlers equipped with sonar fish-finding technology and navigation systems to optimise fish yields and minimise wastage. It also has purse seine fishing vessels and fishmeal processing plants strategically deployed along the Peruvian coast.
Recent development: CFG’s recently-reported FY Sep11 results came in slightly below market expectations. Despite robust revenue growth of 27.2%, net profit declined by 11.1% YoY to US$103.7m due to several one-off charges. Gross margin also narrowed by 3.9ppt to 33.1% as a result of an increase in vessel operating expenses arising from higher costs of fuel and a larger fleet.
Key ratios…
Price-to-earnings: 6.8x
Price-to-NTA: 1.4x
Dividend per share / yield: S$0.045 / 4.9%
Net gearing: 61.2%
Net debt as % of market cap: (66.1%)
Share price S$0.910
Issued shares (m) 1,022.3
Market cap (S$m) 930.26
Free float (%) 29.4
Recent fundraising activities Jun’10 private placement to Carlyle Group – 113.5m new shares @ S$1.85/sh, 26.7m warrants @ S$1/sh (S$190m)
Financial YE 28 Sep
Major shareholders Super Investment – 69.8% Carlyle Group – 11.1%
YTD change -59.4%
52-week price range S$0.835-2.360
Our view Successful refinancing of Senior Notes. Notably, CFG’s bottomline was hurt by one-time charges, particularly from the redemption of the Senior Notes. Excluding this non-recurring expense of US$18.7m, core net profit would have been US$122.3m, implying a 5.1% YoY increase from FY Sep10. Nevertheless, the redemption, which was refinanced by a term loan in September this year, is expected to yield significant interest-cost savings for the group in the long run.
Fresh acquisitions. Early last month, CFG announced that it has acquired two Peruvian fishing companies amounting to US$26.16m. We understand that their assets include two fishing vessels and one fishmeal processing plant. The fishing quotas attached to the fishing permits are equivalent to 0.16% of the total fishing quota in the northern zone of Peru and 0.81% of the total fishing quota in the southern zone of Peru. This brings CFG’s share of the total allowable catch of Peruvian Anchovy to 6.21% in North Peru and 11.72% in South Peru.
Strong focus on growth strategy. According to management, the strategic location of the additional fishmeal processing plant in IIo, the most important port city in South Peru, will allow the group to achieve a geographical spread throughout this western South American country and enhance the use of its fishing quota in the region. In turn, this should lead to better economies of scale and higher operating efficiencies of both fishing fleet and fishmeal processing plants.
Undemanding valuation. Along with the recent market volatility, the stock’s valuation has slipped to about 6.8x FY Sep11 PER. A dividend payout of $0.045 was declared, translating to a decent yield of almost 5.0%.
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