China Fishery Group: Jacking up growth with Mackerel

Harvesting Chilean Jack Mackerel- new growth driver in 2010. A total of 2 upgraded supertrawlers, on top of the current 3, will be deployed there from Sep for the harvest of Chilean Jack Mackerel, which will contribute more significantly in 2010. Management remains confident that this area will be a new growth driver.

Other queries on fishmeal and gearing. Peruvian fishmeal operations will show improvement from 1Q's loss. We expect production volume to rise significantly, from 1Q's 3,900 mt, to about 54,000 mt YTD. Gearing, at 0.89x, is largely (60%) made up of senior notes due in Dec 2013. We expect the group to be able to meet the obligations with internally generated cashflow by then.

200k additional quota in Russia? Seafood International reported that Russian scientists have indicated that the (Russia) quota for Alaska Pollock could increase by 200k mt to 1.7m in 2010. This is new to us and not widely reported. Assuming this translates to additional quota for CFG and does not change pricing dynamics, it could potentially translate into US$50m, potentially raising revenues by10% pa.

Buy, TP: S$1.39, 46% potential upside. Valuations are undemanding at 5.4x FY09 and 4.6x FY10 earnings, a discount to peers' average of 12x on current year's earnings. We maintain our Buy rating with a 46% upside potential to our TP, premised on 8x FY09F earnings. Risks to our call include reduction in quota, major adverse weather patterns, and loss of fishing licences.

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