China Fishery: Decent results in FY08

China Fishery’s revenue grew 13% to US$459.4m in FY08 which was inline with our expectations. Its strong revenue growth was achieved through an increase in sales volume of Alaskan Pollock by 10.3% to 213,000 MT. ASP for Alaskan Pollock also increased by 7.5% to US$1,609/MT. Through its fishmeal operations in Peru, CFGL was able to acquire 5 addition fishing vessels and 1 fishmeal processing plant in FY08. This helped them increase its catch volume by 39.3% to 326,000 MT and increased production volume of fish oil by 25.6% to 131,260 MT.

Net profit grew slightly by 6.6% to US$94.3m due to high fuel costs. We had expected CFGL to achieve net profit of US$98.9m. High bunker fuel cost throughout the year led to the milk earnings growth. We believe that FY09 will be a different story for CFGL as fuel prices are at its lowest from its peak of US$147/bbl in July 2008. We forecast FY09 bunker cost of US$61.8m, 35% less than our FY08 estimate.

High gearing remains, but long term strategy in the South Pacific Ocean is a positive. As of 31 Dec 2008, CFGL has a cash position of US$15.3m as compared to US$18.3m in 2007. We remain concerned that CFGL has a high gearing ratio of 0.92x and a sizeable net debt of US$309.5m. Management has indicated to us that their high gearing is for its CAPEX plans in the South Pacific Ocean. The South Pacific Ocean has an abundant resource of Chilean Jack Mackerel which is used for fishmeal as well as human consumption in Africa. We believe that its trawling operations in the South Pacific Ocean will be revenue contributing in 2H09 and firmer growth is expected in FY10.

We maintain BUY with a target price of S$0.86. We have a price target of S$0.86 based on 3.8x FY09 P/E which is pegged to the FSTC FY09 P/E of 3.9x.

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