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China Fishery’s Expansion Dream (Outperform - Target SG$1.80)

Monday, July 14, 2008

10132

China Fishery Group

Recommendation on 14 July 2008
Recommendation	BUY
Price on Recommendation Date	$1.540
PE Ratio	$9.2
Interest rates	1.580
Suggested purchase price	$1.540
Target Price	$1.800

Weekly Special - 002050 Sanhua

Stock Data

* closing as at July 11, 08

** financial year ended as at Dec 31

Price Chart

Source: Bloomberg

Investment Highlights

China Fishery Group (CFG) continues to pursue its expansion through organic growth and acquisitions. On July 7, CFG announced its latest acquisition of three vessels in Peru, leading its fleet to 37 vessels in total. Earlier April, CFG also acquired its 8th fishmeal plant in Peru, which lifted the total processing capacity by 20% to 655 tonnes per hour. We believe that a series of acquisitions over the past three years has given the company a strong foothold in the Peruvian industry, well ahead the change of fishery system. Peru has announced to replace current “Olympic” system with the Individual Transferable Quota system (ITQ). Under new ITQ, those which hold valid licensed fishing vessels are entitled to a share of fishing quota. CFG’s fleet now runs fish hold capacity of 9,945 cubic meters, or 5.6% market share.

1Q08 result was in line with our expectation, sustained by effective cost control. Net profit grew 32.6% to US$40.4 mil. yr-on-yr, while total revenue remained flat. Gross profit improved to 44.6% from 34.8%. Trawling accounted for 81.7% (1Q07- 65.7%), while fishmeal processing for 18.3% (1Q07 - 34.3%). The change in revenue mix was due to lower selling price of fishmeal yr-on-yr. However, the price gradually recovered in 4Q07.

We maintain Outperform, Target SG$1.80, which implies trading at 9.2x FY08 PER.

Financial Highlights

Source: Company reports, and Phillip Securities

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China Fishery’s Expansion Dream (Outperform - Target SG$1.80)

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