China Fishery: Wider margins due to lower fuel costs

Rise in net profit due to better margins. Net profit for 2Q09 was up 6.6% YoY to US$25.1m. This is in-line with our expectations. However, the reason for this increase was mainly due to cost savings resulting in better margins rather than growth in revenue. Revenue fell 21.7% YoY to US$107.4m, due to a 30.6% (US$32.5m) YoY drop in 2Q09 trawling operations revenue.

We are likely to revise earnings as we expect more cost savings in 2H09 as well as updates on the progress of their South Pacific operations. Our target price will be revised after discussion with management.

Conservation of North Pacific fishing quota to 4Q09 for better efficiency. China Fishery’s 2Q09 trawling operations revenue fell 30.6% YoY as a result of conserving their fishing quota to 4Q09. Reasons for this include higher operational efficiency as they even out their vessel utilisation throughout the year.

Operating cost decreased 30.9% YoY to US$66.1m in 2Q09. This was due to the introduction of the Individual Transferable Quota (ITQ) system in Peru since Apr 09, which would allow them to operate more efficiently. Lower fuel costs also contributed to the decline. Selling expenses declined 29.0% YoY to US$4.9m in line with lower sales volume, hence net margins increased from 17.1% in 2Q08 to 23.4% in 2Q09.

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