2Q09 trawling revenue fell as a result of conserving fishing quota to 4Q09. Reason for this allocation includes higher operational efficiency as they even out their vessel utilisation. They also hope to benefit from higher fish and fish roe prices towards the end of the year as the economy picks up.
Operating cost decreased 30.9% YoY to US$66.1m in 2Q09, due to the introduction of the ITQ system in Peru since Apr 09, allowing them to operate more efficiently. Lower fuel costs also contributed to the decline. Selling expenses declined 29.0% YoY in line with lower sales volume, hence net margins increased to 23.4% in 2Q09 compared to 17.1% in 2Q08.
FY09 net profit forecast raised. We have increased FY09 North Pacific trawling ASP from US$1,750/MT previously to US$1,850/MT due to better than expected ASP in 1H09 (US$1,884/MT). This is partially off-set by a US$9m increase in selling expenses forecast for FY09, as 1H09 selling expenses of US$14.7m turned out higher than expected. Our FY10 net profit has been lowered to US$162.4m from US$169.2m, due to increased FY10 selling expenses.
Target price is raised from S$1.20 to S$1.38. We raise our target price to S$1.38 from a previous S$1.20 based on 5.1x FY10 P/E, which is derived from peer Pacific Andes’ FY11 P/E of 5.1x. We note that since 2007, China Fishery has been consistently trading at a premium to Pacific Andes, with a P/E average of 11.7x versus Pacific Andes’ P/E average of 7.1x. However, our valuation is more conservative as we consider the Group’s inexperience in South Pacific fishing, as well as possible disruptions to their fishmeal operations due to a severe El Nino.
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