Pacific Andes Holdings: Downside is limited

Decent set of 3Q earnings. Despite the gloomy economic outlook, Pacific Andes Holdings (PAH) delivered a fairly decent set of 3Q FY09 results. Net earnings rose 11% YoY to HK$87.1m, while revenue rose 40% YoY to HK$1562.1m. The bottomline improvement was due to another quarter of tax credit. For the 9-month period, net earnings rose 16% YoY to HK$302.8m on a 13% YoY rise in revenue to HK$5445m. Fishing, fishmeal and fishoil accounted for 46% of revenue, while its Frozen Fish SCM unit accounted for the balance. The PRC remains its core market and accounted for 70% of its 9-mth revenue, followed by East Asia with 15%. Margins fell for the 9- mth period due to higher fuel costs seen earlier in the financial year.

CFG's relatively muted performance. China Fishery Group (CFG) saw a relatively muted set of FY08 results. Earnings rose 6.5% YoY to US$94.3m, while revenue grew 13.4% YoY to US$459m. This was partly due to lower selling prices for fishmeal which partly tracked commodity prices. At the net level, there was a tax credit of US$2.8m as its Peru operation is subject to deferred tax liabilities. With the recent strengthening of the USD, it resulted in smaller deferred tax liabilities which in turn led to a tax reversal.

Business updates. Management reiterated that it will be in a good position to benefit from the implementation of the long awaited Individual Transferable Quota (ITQ) system in Peru from 2009 onwards. Organically, its Alaskan Pollock is deemed to be an affordable fish, and there is still demand for it. The group has also secured the term loans from three banks for its expansion in the Pacific. Out of US$29m trade loans, US$20m has been renewed. Capex for FY10 is estimated at around US$20-25m for its South Pacific expansion.

Maintain BUY and fair vale estimate of S$0.30. We are retaining our FY09 estimates of net earnings of HK$492m. While global market conditions remain uncertain, we believe the downside for the stock is limited at current level. Demand for fish could soften in the coming months if market conditions remain weak, but PAH has put in place longer term operational strategies for both the North and South Pacific and this should enable PAH to enjoy higher catch volumes once market conditions improve. We are maintaining our BUY rating and fair value estimate of S$0.30.

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