China Fishery's Q2 profit up 6.6% on-year to US$25m
Posted: 14 August 2009 1826 hrs

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What?s on the table

China Fishery Group (S$2.31) ? Initiating Coverage - Prize catch

Trawling operations form the core of its business, accounting for 65% of 1Q07 revenue. All supertrawlers are linked to vessel-operating agreements (VOA) and are highly profitable with net margins of above 30%. Long-term contracts also provide relatively secure earnings streams and visibility with the earliest expiry for the first three VOAs in 2024. Management is on the lookout for more VOAs, and has been aggressively expanding its fleet of purse seine fishing vessels and fishmeal operations through acquisitions. We believe acquisitions represent the most efficient way for it to leverage management?s extensive experience in industrial fishing and expand operations.

Net profit is expected to jump 122% yoy to US$106.5m in 2007, on full-year contributions from the company?s Peruvian fishmeal operations. Given its strong operating record, 20% share of fishing quotas in Russian waters and significant market position in the Peruvian fishmeal industry, we believe CFG should not be trading at discounts to its global peers, most of which are concentrated in single lines of business. Our target price of S$3.10 values the company in line with the industry average of 13x CY08 P/E, offering potential upside of 34%. Initiate with Outperform.